%r 


HE 


UC-NRLF 


B    3    12fi    220 


ACCOUNTING 

FOR  PROPERTY  AND  EXPENSES  OF  INTERSTATE 

CARRIERS  UNDER  THE  DECISIONS  OF  THE 

SUPREIME    COURT    OF    THE    UNITED 

STATES  IN  THE  MINNESOTA 

RATE  CASE  AND  OTHER 

RECENT  RATE. 

CASES. 


Memorandum  of  Hemy  L.  Stone,  General  Counsel,  and 

Wm.  A.  Colston,  General  Solicitor,  Louisville  & 

Nashville  Railroad  Company. 


Louisville,  Ky.,  November  3,  1913. 


Westekfield-Bokte  Co.,  incorporated,  Louisville,  Kv. 


ACCOUNTING 

FOR  PROPERTY  AND  EXPENSES  OF  INTERSTATE 

CARRIERS  UNDER  THE  DECISIONS  OF  THE 

SUPREME  COURT  OF  THE  UNITED 

STATES  m  THE  MINNESOTA 

RATE  CASE  AND  OTHER 

RECENT  RATE 

CASES. 


Memarandimi  of  Henry  L.  Stone,  G-eneral  Counsel,  and 

Wm.  A.  Colston,  General  Solicitor,  Louisville  & 

Nashville  Railroad  Company. 


THE  NECESSITY  FOR  AN  ESTABLISHED  SYS- 
TEM OF  ACOOUNTING  FOR  EXPENSES  AND 
PROPERTY  OF  INTERSTATE  CARRIERS. 

In  the  Minnesota  Rate  Case,  the  Supreme  Court  re- 
iterated (pamphlet  opinion,  page  43),  its  previous  ex- 
pressions that  the  basis  of  calculation  is  the  fair  value 
of  the  property  used  for  the  convenience  of  the  public, 
and  that  where  the  business  of  the  carrier  is  both  inter- 
state and  intrastate,  the  question  whether  a  scheme  of 
maximum  rates  fixed  by  the  State  for  intrastate  trans- 
portation affords  a  fair  return  must  be  determined  by 
considering  separately  the  value  of  the  property  em- 
ployed in  the  intrastate  business  and  the  compensation 
allowed  in  that  business  under  the  rates  prescribed. 

311883 


In  litigation  respecting  State-made-rates,  it  is  there- 
fore necessary  to  determine  with  respect  to  the  intrastate 
traffic  separately  three  large  facts : 

1.  The  Property  devoted  to  the  Intrastate  Traffic. 

2.  The   Kevenues    or   income    from   the   Intrastate 
Traffic. 

3.  The  Operating  Expenses,  including  taxes,  or  the 
cost  of  doing  the  Intrastate  Traffic. 

The  great  bulk  of  operating  revenues  or  income  items 
can  be  directly  allocated  to  the  intrastate  traffic  or  to 
the  interstate  traffic,  and  the  proportion  of  common  items 
is  so  small  that  for  all  practical  purposes,  it  may  be  said 
that  the  distribution  of  operating  revenues,  earnings,  or 
income  between  intrastate  traffic  and  interstate  traffic  can 
be  effected  without  considerable  difficulty. 

The  distributions  of  property  and  of  expenses,  how- 
ever, present  a  very  different  aspect.  On  interstate  rail- 
roads, intrastate  traffic  is  carried  in  the  same  trains  and 
often  in  the  same  cars,  and  always  over  the  same  ties  and 
rails  as  interstate  traffic  and  practically  all  of  the  prop- 
erty used  and  practically  all  of  the  expenses  incurred 
are  jointly  used  and  incurred  by  the  interstate  traffic  and 
the  intrastate  traffic;  and  with  respect  to  this  property 
jointly  used  and  with  respect  to  these  expenses  jointly 
incurred,  no  one  can  say,  except  upon  the  establishment 
of  an  authoritative  rule,  how  much  shall  be  charged  to 
the  one  kind  of  traffic,  interstate,  and  how  much  shall  be 
charged  to  the  other  kind  of  traffic,  intrastate. 

There  also  arises,  particularly  in  passenger  rate  cases, 
the  necessity  or  desirability  of  distributing  property  and 


expenses  between  the  passenger  traffic  and  the  freight 
traffic.  It  has  been  held,  by  some  of  the  lower  courts  at 
least,  that  in  passenger  rate  litigation,  it  is  not  sufficient 
merely  to  show  that  the  return  from  all  of  the  intrastate 
traffic  is  insufficient,  when  compared  with  the  property 
devoted  to  that  traffic,  but  it  must  also  be  shown  that  the 
passenger  rates  in  controversy  contribute  to  the  insuffi- 
ciency, and  in  the  Pennsylvania  Railroad  case,  it  was 
held  by  a  divided  State  court  of  last  resort,  that  the  in- 
trastate passenger  earnings  should  be  separately  consid- 
ered in  connection  with  the  property  devoted  to  that 
particular  traffic. 

And  even  if  it  be  not  necessary  to  consider  separately 
the  final  returns  from  the  intrastate  passenger  traffic,  as 
compared  with  the  property  devoted  to  that  traffic,  it  is 
generally  necessary  to  make  a  distribution  between  the 
freight  traffic  and  the  passenger  traffic,  in  order  to  arrive 
at  a  distribution  between  the  interstate  traffic  and  the  in- 
trastate traffic,  because,  w^hile,  the  interstate  units  in  the 
freight  traffic  have  certain  similarities  to  the  intrastate 
units  in  the  freight  traffic,  and  while  the  interstate  units 
in  the  passenger  traffic  have  certain  similarity  to  the  in- 
trastate units  in  the  passenger  traffic,  there  is  no  such 
similarity  between  the  passenger  units  and  the  freight 
units  as  will  enable  a  distribution  of  property  and  ex- 
penses upon  such  units  when  considered  together.  That 
is  to  say,  one  can  not  compare  a  passenger  with  a  ton  nor 
can  one  compare  a  passenger-mile  with  a  ton-mile,  and 
even  a  gross  ton-mile  of  passenger  train  is  an  entirely 
different  thing  from  a  gross  ton-mile  of  a  freight  train. 


For  many  years  rate  cases  have  been  tried  upon  the 
opinions  of  experts  showing  that  the  intrastate  traffic 
costs  to  earn  a  certain  percentage  of  the  revenue  more 
than  the  interstate  traffic  costs,  or  more  than  all  traffic, 
interstate  and  intrastate  combined  costs,  and  distribu- 
tions of  property  have  also  been  made  upon  a  revenue 
basis.  Not  only  do  such  distributions  involve  the  fallacy 
of  petitio  principii,  because  the  greater  the  rates,  the 
greater  the  revenues  and  the  greater  the  expenses  and 
the  greater  the  amount  of  property  apportioned  to  the 
business  under  such  distributions,  but  such  distributions 
have  definitely  been  disapproved  by  the  Supreme  Court 
of  the  United  States  in  the  Minnesota  Rate  case. 

With  respect  to  such  distributions,  the  court  said 
(pamphlet  opinion,  pages  65-66) : 

'^The  statements  of  the  complainants'  witnesses 
as  to  the  extra  cost  of  intrastate  business,  while  en- 
titled to  respect  as  expressions  of  opinion,  mani- 
festly involve  wide  and  difficult  generalizations. 
They  embrace,  without  the  aid  of  statistical  infor- 
mation derived  from  appropriate  tests  and  sub- 
mitted to  careful  analysis,  a  general  estimate  of  all 
the  conditions  of  transportation  and  an  effect  to  ex- 
press in  the  terms  of  a  definite  relation,  or  ratio, 
what  dearly  could  be  accurately  arrived  at  only  by 
prolonged  a.nd  minute  investigation  of  particular 
facts  with  respect  to  the  actual  traffic  as  it  was  being 
carried  over  the  line.  The  extra  cost,  as  estimated 
by  these  witnesses,  is  predicated  not  simply  of  haul- 
age charges,  but  of  all  the  outlays  of  the  freight 
service  including  the  share  of  the  expenses  for  main- 
tenance of  way  and  equipment  assigned  to  the  freight 
department.  And  the  ratio,  to  be  accurately  stated, 
must  also  express  the  results  of  a  suitable  discrimi- 


nation  between  tlie  interstate  and  intrastate  traffic 
on  through  and  local  trains  respectively  and  of  an  at- 
tribution of  the  proper  share  of  the  extra  cost  of 
local  train  service  to  the  interstate  traffic  that  uses 
it.  Tiie  wide  range  of  the  estimates  of  extra  cost, 
from  three  to  six  or  seven  times  that  of  the  inter- 
state business  per  ton-mile,  shows  both  the  difficulty 
and  the  lack  of  certainty  in  passing  judgment. 

^*We  are  of  opinion  that  on  an  issue  of  this  char- 
acter involving  the  constitutional  validity  of  State 
action,  general  estimates  of  the  sort  here  submitted, 
with  respect  to  a  subject  so  intricate  and  import- 
ant, should  not  be  accepted  as  adequate  proof  to 
sustain  a  finding  of  confiscation.  While  accounts 
have  not  been  kept  so  as  to  show  the  relative  cost 
of  interstate  and  intrastate  business,  giving  par- 
ticulars of  the  traffic  handled  on  through  and  local 
trains,  and  presenting  data  from  which  such  extra 
cost,  as  there  may  be,  of  intrastate  business  may  be 
suitably  determined,  it  would  appear  to  have  been 
not  impracticable  to  have  had  such  accounts  kept 
or  statistics  prepared  at  least  during  test  periods 
properly  selected.  It  may  be  said  that  this  would 
have  been  a  very  difficult  matter,  but  the  company 
having  assailed  the  constitutionality  of  the  State 
acts  and  orders  was  bound  to  establish  its  case,  and 
it  was  not  entitled  to  rest  on  expressions  of  judg- 
ment when  it  had  it  in  its  power  to  present  accurate 
data  which  would  permit  the  court  to  draw  the  right 
conclusion. '  * 

Common  carriers  engaged  in  interstate  commerce  in 
the  United  States  are  subject  to  two  rate-making  juris- 
dictions, one  the  State  Body  and  the  other  the  Federal 
Body,  both  have  jurisdiction  and  both  are  in  continual 
session  and  can  act  at  any  time  contemporaneously  or 
separately. 


6 

Under  such  oircnmstances,  the  necessity  for  the  adop- 
tion of  a  fixed  and  uniform  plan  of  distributing  operat- 
ing expenses  and  the  properties  of  interstate  carriers  is 
illustrated  by  the  charts  numbered  from  one  to  four  on 
the  following  pages. 


Total  Expenses  for  ^i6tribution^2.ooo,ooo. 

On  ihe  assumption  of  eoual  ^i/ision  yve 
have 

Jfc 

i 

/ntrastate 

fhter  state 

^  i 000^000. 

^  too  0^0  00. 

Total  Expenses  for  distribution  SZpoo^ooo. 

Of   which    Z0%   is   ^oubtful. 
Result  in  Trial    of    /ntrastate  Case. 

\        ,Xo. 

t. 

mirasiaie   \ 

,      fmerstaie 

■^600,000.        \ 

dtzoo,  000. 

8 


Total  Expenses  for  distribution  ^Zooqooo. 
Of  which    ZO  Yo   is    ^ouhiful. 
Pe^uH  of-   Trial  in     /yi^erstate   Ca^e. 


J/q:^3 


/ntrasif-ate 


^f,  zoo,  000, 


/nterstate 


00^  ooo. 


Total  Expenses  for  distribution  ^Z,ooo,ooo. 
Of  which  Z0%  is  ^ouhtfuL 
Tfesoflt  of  Trial  in     Two  Cases. 


s 


7^, 


Tr?ira  state, 


/60Q 


000. 


xpenses  incurret, 
foryvhich  the 
y/ompcmj  mts 
n  0  cre^'i  t  /    /titersta  te 

p4oqooo.i 

^ So  0,000. 


Chart  No.  1,  represents  the  ideal  condition  of  abso- 
lute fact,  ascertainable  or  to  be  fixed  only  by  a  supreme 
intellect  or  by  a  supreme  authority.  In  this  ideal  case, 
the  total  expense  of  $2,000,000.00  (and  the  same  reason- 
ing will  apply  to  a  total  property  value  of  $2,000,000.00) 
is  correctly  distributed  in  equal  portions  between  the 
intrastate  traffic  and  the  interstate  traffic. 

But  we  can  not  put  the  supreme  intellect  on  the  wit- 
ness stand  and  the  rule  of  division  has  not  been  estab- 
lished by  a  supreme  authority,  or  even  by  any  authority 
which  will  be  recognised  in  the  courts,  and  it  is  conser- 
vative to  say  that  at  least  20  per  cent  of  the  expenses 
may,  in  the  differing  opinions  of  reasonable  men,  be  dis- 
tributed to  either  the  one  class,  interstate,  or  to  the  other 
class,  intrastate. 

The  rule  adopted  by  the  Supreme  Court  in  the  rate 
cases  appears  to  be  that  expenses  and  property  must  be 
distributed  with  certainty  before  relief  can  be  granted, 
that  is  to  say,  when  a  railroad  complains  of  rates  fixed 
by  State  authority  or  by  Federal  authority,  the  plaintiff 
must  show  beyond  a  reasonable  doubt  that  so  much 
property  has  been  used  or  is  required  and  so  much  ex- 
pense has  been  incurred  or  is  incurred  in  conducting  the 
traffic  in  litigation. 

Thus  in  a  contest  involving  the  intrastate  rates,  re- 
solving the  20  per  cent  of  doubt  against  the  complain- 
ant, only  $800,000.00  can  be  charged  against  the  intra- 
state traffic,  which,  under  the  assumed  state  of  c^se, 
should  stand  an  expense  of  $1,000,000.00,  and  there  must 
be  thrown  against  interstate  traffic,  which  is  not  in  con- 


10 

troversy,  the  remainder  of  the  expenses,  or  $1,200,000.00, 
although  the  interstate  traffic  should  be  charged  with 
$1,000,000.00  only.  This  situation  is  illustrated  by  Chart 
No.  2. 

Similarly,  in  a  trial  of  interstate  rates  only,  the  rail- 
roads would  be  permitted  to  charge  interstate  traffic 
with  only  $800,000.00,  the  remaining  charge  going  to 
intrastate  traffic  not  then  under  consideration  by  the 
court.    This  situation  is  shown  in  Chart  No.  3. 

Now,  both  jurisdictions  undertake  to  act  concurrently. 
The  State  authorities  assuming  to  act  upon  the  intra- 
state business  only  and  the  Federal  authority  assum- 
ing to  act  upon  the  interstate  business  only,  and  (let 
us  suppose)  the  cases  are  tried  in  different  courts.  In 
the  court  hearing  the  State  case  all  reasonable  doubts 
must  be  resolved  in  favor  of  the  State  rates  and  in  the 
court  hearing  the  interstate  case,  all  reasonable  doubts 
must  be  resolved  in  favor  of  the  interstate  rates.  As  a 
result,  the  railroad  can  charge  only  $800,000.00  to  intra- 
state traffic  and  only  $800,000.00  to  interstate  traffic  and 
there  is  $400,000.00  of  expense  (or  $400,000.00  worth  of 
property)  for  which  or  on  account  of  which  the  railroad, 
although  it  has  made  the  expenditure,  is  permitted  no 
return  whatever.  This  situation  is  illustrated  by  Chart 
No.  4. 

It  is,  therefore,  respectfully  submitted  that,  in  order 
for  interstate  carriers  to  hope  to  win  law  suits  involving 
the  question  of  confiscation,  either  with  respect  to  in- 
terstate rates  or  with  respect  to  intrastate  rates. 


11 

1.  There  must  in  future  be  a  uniform  method  or  sys- 
tem of  accounting,  so  that  the  railroad  may  ob- 
tain credit  for  every  dollar  of  expenses  incurred 
and  for  every  dollar  of  property  devoted  to  the 
traffic,  either  in  the  one  class  of  service  or  in  the 
other  class  of  service. 

2.  It  is  preferable  that  the  stamp  of  approval  of  the 
supreme  authority  in  such  matters  (Congress  act- 
ing either  directly  or  through  the  Interstate  Com- 
merce Commission)  should  be  obtained  for  the 
method  adopted. 

The  Southeastern  carriers  engaged  in  contesting  rates 
prescribed  by  the  Alabama  Legislature,  recognized  four 
years  before  the  decision  in  the  Minnesota  case,  the 
necessity  for  distributing  operating  expenses  according 
to  the  USE  made  of  the  property  and  expenses  or  accord- 
ing to  the  SERVICE  required  for  the  several  classes 
of  traffic  and  independently  of  the  revenue  produced, 
and  in  September  and  October,  1909,  conferences  of  lines 
contesting  the  Alabama  rates  were  held  at  Atlanta,  Ga., 
to  consider  such  methods  of  accounting,  and  the  general 
principles  of  distributing  operating  expenses  as  between 
interstate  traffic  and  intrastate  traffic  upon  what  was 
termed  the  Unit  of  Service  Basis  were  adopted. 

This  basis  was  accepted  by  the  Special  Master  and 
approved  by  the  Circuit  Court  (now  the  District  Court) 
of  the  United  States  for  the  Middle  District  of  Alabama, 
and  the  decree  of  the  court  enjoining  the  rates  upon  the 
result  reached  by  the  Unit  of  Service  Basis,  has  not  been 
appealed  from.  The  following  excerpt  from  pages  160 
to  195  of  the  Special  Master's  Eeport  in  the  Louisville 
&  Nashville  case  of  the  Alabama  Rate  Litigation  (No. 


12 

264  in  Equity  in  the  Circuit  Court  of  the  United  States 
for  the  Middle  District  of  Alabama,  196  Fed.  800),  af- 
fords a  general  explanation  of  the  plan. 

UNIT  OF  SERVICE  BASIS. 

The  division  of  operating  expenses  between  interstate 
and  intrastate  traffic,  was  made  by  complainant  on  what 
it  calls  the  Unit  of  Service  Basis.  And  it  is  against  this 
theory  that  defendants  have  directed  their  chief  attack. 

It  is  reviled  as  having  supplanted  the  methods  pre- 
viously used  and  as  having  been  invented  solely  for  the 
purpose  of  this  litigation. 

In  so  far  as  it  may  supersede  previous  methods,  that 
might  be  a  virtue  if  the  older  methods  are  themselves 
unreliable  and  mere  guess  work.  And  as  to  the  occa- 
sion of  its  birth,  Necessity  is  a  reputable  mother. 

Before  going  into  an  explanation  of  the  Unit  of  Serv- 
ice basis  I  will  refer  to  some  views  that  confirm  its  re- 
sults. 

The  complainant  has  thirteen  divisions  of  its  road  do- 
ing business  in  Alabama.  In  six  of  these,  out  of  a  total  of 
$23,394,060.83  of  earnings  for  1907-8,  $21,436,516.67  was 
earned,  that  is,  21-23  of  the  entire  earnings  were  made 
in  six  divisions,  and  of  this  $11,992,877.38  was  interstate 
and  $9,443,639.29  was  intrastate.     (Record  1604.) 

These  six  divisions  were  divided  into  two  groups,  one 
typical  interstate  and  the  other  intrastate.  The  former 
are  the  N.  &  D.;  M.  &  M.;  and  N.  0.  &  M.;  while  the  intra 
are  the  B.  M.;  A.  M.  and  the  S.  A. 

For  the  three  years  mentioned,  72.74%  of  the  entire 
business  on  the  interstate  divisions  was  interstate  busi- 
ness and  27.26%  intrastate.  In  the  other  class  69.96% 
of  the  business  was  intrastate  and  30.04%  inter. 

The  earnings  and  expenses  shown  on  Exhibit  W.  A. 
G;  67  are  the  entire  earnings  and  expenses  of  each  di- 
vision for  each  year  shown  by  the  books  of  complain- 
ant, and  there  is  no  doubt  of  their  accuracy.    Said  Ex- 


13 

hibit  67  shows  that  for  the  year  1906-7  the  cost  of  earn- 
ing a  dollar  upon  the  typical  interstate  divisions  was 
60.88  cents;  while  the  cost  to  earn  a  dollar  upon  the  intra 
divisions  was  93.24  cents,  and  that  the  cost  to  earn  a 
dollar  upon  the  whole  six  divisions  was  73.96  cents; 
thus  showing  that  for  that  year  an  excess  of  practically 
40%  of  intra  business  done  on  the  three  typical  intra- 
state divisions,  over  the  intrastate  business  on  the  three 
interstate  divisions,  results  in  an  increase  of  32.96  cents 
to  earn  a  dollar  on  intrastate  divisions. 

For  the  year  1907-8,  the  cost  to  earn  a  dollar  on  the 
interstate  divisions  was  67.92  cents;  while  the  cost  on 
the  intra  was  90.85  cents,  showing  that  an  excess  of  in- 
trastate business  on  the  intrastate  divisions  of  approxi- 
mately 40%  over  the  intra  business  on  the  inter  divi- 
sions, increased  the  cost  to  earn  a  dollar  on  intra  divi- 
sions 22.93  cents  over  the  cost  to  earn  a  dollar  on  the 
interstate  divisions;  while  for  the  year  1909  a  similar 
difference  in  percentages  of  intrastate  business  increased 
the  cost  to  earn  a  dollar  on  the  intrastate  divisions  17.21 
cents  over  the  cost  to  earn  a  dollar  on  the  inter  divisions. 

Taking  the  three  years  as  a  whole,  an  excess  of  ap- 
proximately 40%  of  intrastate  business  done  upon  the  in- 
trastate divisions  over  the  intrastate  business  done  upon 
interstate  divisions  resulted  in  an  excess  of  24.48  cents 
to  earn  a  dollar  on  the  intrastate  divisions  for  the  en- 
tire period  over  the  cost  to  earn  a  dollar  on  the  inter- 
state divisions  for  said  period. 

24.48  is  40  per  cent  of  61.20  per  cent,  so  that  the  re- 
sult of  these  figures  indicates  that  had  the  entire  busi- 
ness of  the  intrastate  divisions  been  intrastate  and  the 
entire  business  of  the  interstate  divisions  been  intra- 
state for  the  entire  period  of  three  years,  the  cost  to 
earn  a  dollar  on  the  intrastate  business  during  such  en- 
tire period  would  have  been  approximately  60  cents  more 
than  the  cost  to  earn  a  dollar  upon  interstate  business. 

In  making  these  calculations  the  excess  of  the  intra- 
state business  done  upon  the  intrastate  divisions  over 
the  intrastate  business  over  the  interstate  divisions,  has 


14 

been  taken  as  40%.  As  will  be  seen  by  Exhibit  67  this 
is  slightly  in  excess  of  the  actual  per  cent.  If  the  actual 
per  cent  were  taken  it  would  show  that  the  cost  to  earn 
a  dollar  upon  intrastate  business  was  between  50  and 
60  cents  more  than  the  cost  to  earn  a  dollar  on  inter- 
state business. 

These  figures  are  not  subject  to  the  criticisms  that 
have  been  made  of  the  various  efforts  to  ascertain  the 
cost  to  earn  a  dollar  in  intrastate  business  in  excess  of 
the  cost  to  earn  a  dollar  on  interstate  business  by  a  dis- 
tribution of  expense.  The  figures  used  are  accurate  to 
a  cent  and  indisputable,  and  show  beyond  controversy 
that  on  at  least  twenty-one  twenty-thirds  or  91.3-lOths 
per  cent  of  the  entire  business,  it  costs  between  50  and 
60  cents  more  to  earn  a  dollar  on  intrastate  business 
than  upon  interstate  business. 

Mr.  Colston's  unit  of  service  basis  for  the  year  1907 
shows  that  the  excess  of  cost  to  earn  a  dollar  in  intra- 
state traffic  over  the  cost  to  earn  a  dollar  in  all  traffic  was 
25.26  cents,  Record,  page  1599,  while  Exhibit  67  shows 
that  the  excess  of  cost  of  earning  a  dollar  where  the  in- 
trastate business  predominates  to  the  extent  of  40  per 
cent  is  32.36  cents  over  the  cost  to  earn  a  dollar  where 
the  intrastate  business  is  40  per  cent  less;  or,  in  other 
words,  that  the  excess  of  cost  of  earning  a  dollar  on  in- 
trastate business  over  the  cost  of  earning  a  dollar  on 
interstate  business  was  81.40  cents. 

Mr.  Colston's  unit  of  service  basis  for  the  year  1908 
shows  that  the  cost  of  earning  a  dollar  in  intrastate 
business  was  29.89  cents  more  than  the  cost  of  earning 
a  dollar  on  all  business.  Record,  page  1599,  while  Ex- 
hibit 67  shows  that  the  cost  to  earn  a  dollar  where  the 
intrastate  traffic  predominates  about  40  per  cent,  was 
22.93  cents  over  the  cost  to  earn  a  dollar  where  intra- 
state business  was  40  per  cent  less;  or,  that  it  cost  57.32 
cents  more  to  earn  a  dollar  in  intrastate  business  than 
in  interstate  business. 

For  the  year  1909,  Mr.  Colston's  unit  of  service  basis 
shows  that  it  cost  28.73  cents  more  to  earn  a  dollar  on 


15 

intrastate  business  than  on  all  business;  while  Exhibit 
67  shows  that  for  that  year  it  cost  to  earn  a  dollar  where 
the  intrastate  business  predominates  40  per  cent  more, 
17.21  cents  more  than  it  cost  to  earn  a  dollar  where  the 
intrastate  business  was  40  per  cent  less;  or  that  it  cost 
to  earn  a  dollar  on  intrastate  business  43.02  cents  more 
than  it  costs  to  earn  a  dollar  on  interstate  business. 

An  examination  of  Exhibit  67  will  further  show  that 
for  each  year  the  cost  to  earn  a  dollar  upon  each  of  the 
typical  intrastate  divisions  was  uniformly  larger  than 
the  cost  to  earn  a  dollar  upon  each  of  the  typical  inter- 
state divisions,  and  that  the  results  developed  by  a  com- 
parison of  the  three  intrastate  divisions  with  the  three 
interstate  divisions  are  practically  maintained  by  a  com- 
parison of  the  intrastate  divisions  with  interstate  di- 
visions, division  by  division. 

The  results  shown  by  Exhibit  67  for  all  practical  pur- 
poses accord  with  the  results  of  Mr.  Colston's  unit  of 
service,  and  also  with  the  testimony  of  all  the  expert 
witnesses  as  to  the  extra  cost  to  earn  a  dollar  in  intra- 
state business  over  the  cost  to  earn  a  dollar  in  all 
business. 

Exhibit  69  shows  the  entire  business  done  during  the 
three  years  covered  by  the  statutory  rates  with  a  re- 
capitulation dividing  the  divisions  into  two  classes,  one 
in  which  the  interstate  rates  predominate,  and  the  other 
in  which  intrastate  rates  predominate.  This  exhibit 
shows  that  the  average  cost  to  earn  a  dollar  on  all  of 
the  divisions  on  which  interstate  predominates  for  the 
three  years  was  67.53  cents,  while  the  average  cost  to 
earn  a  dollar  on  all  divisions  in  which  intrastate  pre- 
dominates was  87.20,  in  other  words,  that  it  cost  an  aver- 
age of.  19.63  cents  more  to  earn  a  dollar  upon  the  divi- 
sions upon  which  intrastate  predominated,  than  to  earn 
a  dollar  on  the  divisions  where  the  interstate  predomi- 
nated. The  predominating  intrastate  divisions  had  41.82 
per  cent  more  intrastate  business  than  did  the  predomi- 
nating interstate  division,  so  that  41.82  per  cent  of  in- 
trastate business  produced  an  additional  cost  of  19.63 


16 

cents  to  earn  a  dollar  on  the  intrastate  divisions  over 
the  cost  to  earn  a  dollar  upon  the  interstate  divisions. 
19.63  is  41.82  per  cent  of  48  cents,  so  that  if  41.82  per 
cent  of  intrastate  business  produced  an  additional  cost 
of  19.63  cents  to  earn  a  dollar  on  the  intrastate  division 
over  the  cost  to  earn  a  dollar  upon  the  interstate  di- 
visions. 19.63  is  41.82  per  cent  of  48  cents,  so  that  if 
41.82  per  cent  additional  intrastate  traffic  produced  an 
additional  cost  of  19.63  cents  to  earn  a  dollar,  then  had 
all  of  the  traffic  been  intrastate,  it  ought  to  have  pro- 
duced an  additional  cost  of  48  cents  to  earn  a  dollar  on 
intrastate  traffic  over  the  cost  of  interstate  traffic,  which 
corresponds  with  the  results  of  Mr.  Colston's  unit  of 
service  and  also  with  the  opinion  of  all  the  expert  wit- 
ness upon  the  subject. 

Therefore,  it  seems  by  this  analysis  that  wholly  irre- 
spective of  the  accuracy  of  the  methods  adopted  by  Mr. 
Colston  in  his  unit  of  service,  it  is  conclusively  shown 
that  the  results  produced  thereby  are  almost  mathema- 
tically correct. 


Algebra^ical  Demonstration. 

In  Exhibit  W.  A.  C.  68,  Mr.  Colston  has  formulated 
two  algebraical  equasions,  one  from  the  business  done 
upon  the  typical  intrastate  divisions  for  the  entire 
period  of  three  years,  and  the  other  from  the  business 
done  upon  typical  interstate  divisions  for  the  entire 
three  years,  and  on  this  basis  he  has  obtained  by  alge- 
Braical  process  that  when  each  class  of  business  is 
handled  under  typical  conditions  it  costs  practically  57 
cents  more  to  earn  a  dollar  on  intrastate  business  than 
to  earn  a  dollar  on  interstate,  and  that  it  costs  32  cents 
more  to  earn  a  dollar  on  intrastate  business  than  it  costs 
to  earn  a  dollar  on  all  business. 

In  Exhibit  W.  A.  C.  70,  Mr.  Colston  has  taken  two 
algebraical  equasions,  one  from  all  of  the  interstate  di- 
visions for  the  entire  period,  and  the  other  from  all  of 
the  intrastate  divisions  for  the  entire  period,  and  has 


17 

ascertained  from  these  equasions  that  under  the  con- 
ditions applying  to  all  traffic  for  the  State  of  Alabama 
it  costs  practically  45  cents  more  to  earn  a  dollar  on 
intrastate  business  than  on  interstate  business,  and  that 
it  costs  over  26  cents  more  to  earn  a  dollar  on  intrastate 
business  than  on  all  business. 

I  now  proceed  to  give  an  explanation  of  the  unit  of 
service  basis,  which  can  be  applied  to  any  road.  And 
as  it  was  invented  or  devised  by  Mr.  W.  A.  Colston,  a 
witness  in  this  case,  and  a  very  intelligent  and  com- 
petent man,  I  give  the  explanation  substantially  in  his 
words  taken  from  the  brief  of  H.  L.  Stone,  leading  coun- 
sel for  the  complainant. 

'^THE  UOTT  OF  SERVICE  BASIS  OR  PLAN  OF 
DIVIDING  OPERATING  EXPENSES.'' 

The  unit  of  service  basis  or  plan  is  the  result  of  an 
effort  to  divide  operating  expenses  between  interstate 
traffic  and  intrastate  traffic  without  reference  to  the  rev- 
enue and  in  accordance  with  the  service  rendered  or 
required. 

There  exists  considerable  difficulty  in  such  an  under- 
taking for  the  reason  that  the  business  carried  on  by 
railroads  consists  of  two  quite  dissimilar  large  divisions 
—the  freight  traffic  and  the  passenger  traffic.  It  is  im- 
possible, of  course,  to  compare  a  passenger  with  a  ton, 
or  a  passenger-mile  with  a  ton-mile. 

In  response  to  request,  the  accounting  officers  of  lines 
engaged  in  the  Alabama  Rate  Litigation  held  confer- 
ences at  Atlanta,  Ga.,  in  September  and  in  October,  1909, 
and  considered  in  detail  various  known  plans  of  divid- 
ing operating  expenses  between  States,  between  freight 
and  passenger  traffic,  and  between  interstate  traffic  and 
intrastate  traffic,  and  adopted  as  the  principle  upon 
which  distribution  of  operating  expenses  should  be  made 
between  interstate  and  intrastate  traffic,  the  Unit  of 
Service  basis  by  the  following  resolution  (South  &  North, 
Record,  pp.  2571-2572) : 


18 

'*  RESOLVED,  TTiat  in  the  separation  of  operat- 
ing expenses  as  between  interstate  traffic  and  intra- 
state traffic  upon  a  Unit  of  Service  Basis,  freight 
and  passenger  expenses  should  first  be  divided  as 
between  haulage  and  non-haulage  items  and  general 
expenses,  and  that  freight  haulage  items  should  be 
apportioned  to  interstate  and  intrastate  traffic  on 
basis  of  the  number  of  ton-miles  in  each  class,  equa- 
lized or  adjusted  to  local  conditions;  that  freight 
non-haulage  items  should  be  apportioned  on  basis 
of  tons  so  equalized  or  adjusted;  and  that  general 
expenses  should  be  apportioned  on  basis  of  haulage 
and  non-haulage  items  so  divided;  and  that  pas- 
senger expenses  should  be  similarly  divided  on  basis 
of  equalized  or  adjusted  passenger  miles  or  pas- 
sengers. *  ^ 

And  the  application  of  this  principle  which  has  been 
made  by  complainant  in  the  present  case  has  been  tes- 
tified to  by  experienced  railroad  accounting  and  operat- 
ing officers  not  connected  with  complainant  company,  or 
with  any  of  the  lines  engaged  in  the  Alabama  Rate  Liti- 
gation, as  being  the  best  and  most  scientific  method  of 
dividing  operating  expenses  which  has  yet  been  devised. 

The  courts,  the  Interstate  Commerce  Commission, 
railroad  accountants  and  economists  are  substantially 
a  unit  in  the  opinion  that  operating  expenses  can  not 
be  divided  between  different  classes  of  traffic  with 
mathematical  accuracy.  The  opinion  in  the  following 
quotation  from  Northern  Pacific  Railway  Co.  v.  Keyes, 
91  Fed.  47,  may  be  taken  as  that  of  the  railway  world: 

*  ^  The  fundamental  question  in  all  cases  like  these 
is,  will  the  rates  prescribed  by  the  State  pay  the  ex- 
pense of  doing  the  local  business,  and  leave  to  the 
carrier  a  reasonable  compensation  upon  the  fair 
value  of  the  property  which  it  employs  in  perform- 
ing the  service.  Certain  of  the  factors  necessary  to 
a  determination  of  this  question  are  capable  of  defi- 
nite knowledge;  others  must  forever  rest  largely 


19 

upon  opinion.  The  income  derived  by  tlie  carrier 
from  the  business  which  it  conducts  within  the  State 
can  be  ascertained  accurately  from  the  records  of 
the  company,  but  the  expense  of  doing  that  business 
is  not  susceptible  of  mathematical  ascertainment. 
Many  of  its  items  apply  equally  to  local  and  inter- 
state business.  The  different  kinds  of  traffic  are 
often  carried  in  the  same  train,  and  not  infrequently 
in  the  same  car.  It  is  absolutely  impossible  to  di- 
vide the  cost  of  traffic  thus  moved,  and  say  that  this 
amount  should  be  attributed  to  local  business  and 
that  amount  to  interstate. ' ' 

But  it  appears  from  the  testimony  in  this  case  that 
it  is  possible  for  experienced  accountants  to  state  the 
minimum  costs  which  should  be  reasonably  charged 
against  any  particular  traffic.  And  this  complainant 
has  endeavored  to  do  in  this  case,  with  respect  to  the 
intrastate  traffic;  and  in  making  the  preliminary  sub- 
division of  expenses  between  freight  traffic  and  pas- 
senger traffic  complainant  has  stated  the  minimum  costs 
of  doing  the  passenger  traffic,  because  intrastate  traffic 
bears  a  larger  proportion  of  the  expenses  of  passenger 
traffic  than  it  bears  of  the  expenses  of  freight  traffic. 

The  results  arrived  at  by  complainant  upon  the  Unit 
of  Service  basis  support  and  are  supported  by  the  tes- 
timony of  experts  as  to  the  excess  cost  of  earning  a 
dollar  of  intrastate  traffic  as  compared  with  the  average 
cost  of  earning  a  dollar  of  all  traffic,  interstate  and  in- 
trastate combined,  and  also  support  and  are  supported 
by  the  algebraical  calculations  which  are  shown  in  this 
case. 

The  fairness  and  reasonableness  of  the  Unit  of  Serv- 
ice basis  as  a  method  or  plan  of  dividing  operating  ex- 
penses has  also  been  testified  to  specifically  in  this  case 
by  experienced  traffic,  operating  and  accounting  officers, 
both  those  connected  with  and  those  not  connected  with 
com_plainant  company.  And  this  testimony  as  to  the 
fairness  and  reasonableness  of  the  plan  relates  not  only 


r'. 


20 

to  the  separate  steps  or  parts  of  the  method  but  also  to 
the  results  reached  as  a  whole. 


Outline  and  Explanation  of  the  Plan. 

The  chart  on  the  opposite  page  affords  an  outline 
of  the  Unit  of  Service  basis  for  dividing  operating  ex- 
penses as  between  interstate  and  intrastate  traffic,  and 
represents  graphically,  in  six  lines  of  circles,  the  process 
of  analysis  and  synthesis  in  accordance  with  which  the 
total  operating  expenses  in  the  State  of  Alabama  are 
finally  distributed  into  total  interstate  expenses  and  total 
intrastate  expenses  for  the  State  of  Alabama. 

Obviously,  other  conditions  being  the  same,  no  separa- 
tion of  operating  expenses  can  be  based  merely  upon 
the  distinction  between  interstate  traffic  and  intrastate 
traffic.  If  the  circumstances  surrounding  the  handling 
of  interstate  traffic  were  exactly  the  same  as  the  circum- 
stances surrounding  the  handling  of  intrastate  traffic, 
it  would  cost  just  as  much  to  do  the  one  kind  of  traffic 
as  it  would  cost  to  do  the  other  kind.  The  basis  of  di- 
vision must,  therefore,  be  sought  in  differences  of  con- 
ditions or  characteristics  of  the  two  kinds  of  traffic.  The 
most  distinguishing  feature  which  can  be  employed  for 
this  purpose  appears  to  be  that  which  underlies  com- 
plainant's plan— the  average  length  of  haul.  The  effect 
of  relative  lengths  of  haul  on  relative  costs  of  transpor- 
tation has  long  been  recognized  by  the  courts,  and  this 
fundamental  distinction  was  observed  in  the  recent  opin- 
ion in  the  Minnesota  Rate  Case,  Shepard  v.  Northern 
Pacific  Railroad  Co.,  et  al.;  184  Fed.  765,  April  8,  1911. 
At  page  781,  Judge  Sanborn  says: 

**  Every  rate  comprehends  two  terminal  charges, 
the  initial  and  the  final,  and  a  distance  haulage 
charge.  It  is  a  cardinal  principle  of  rate  making 
that  a  rate  for  a  longer  distance  should  be  propor- 
tionately smaller  than  one  for  a  shorter  distance; 
that  is  to  say,  that  a  rate  for  500  miles  should  be 


n-« 

•Nl , 

>i 

"^ 

•w 

■^ 

<*i^ 

p 

^ 

•^ 

<^ 

^ 

> 

21 

less  than  twice  the  rate  for  250  miles,  if  conditions 
of  transportation  be  the  same,  because  the  rate  for 
250  miles  includes  two  terminal  charges,  and,  if  the 
rate  for  500  miles  were  twice  the  rate  for  250  miles, 
it  would  manifestly  include  the  equivalent  of  four  ter- 
minal charges.  Even  if  the  haulage  charge  were  the 
same  per  mile  for  a  haul  of  500  miles  as  for  a  haul 
of  250  miles,  which  is  contrary  to  the  rule  generally 
applied  in  rate  making,  the  rate  per  ton  per  mile 
for  the  500  miles  should  be  less  than  for  the  250 
miles  because  in  the  one  case  the  terminal  charges 
would  be  spread  over  500  miles  and  in  the  other  over 
only  250  miles.'' 

And  Clements,  Commissioner,  said  in  the  case  of 
Board  of  Trade  of  Trov,  Ala.,  v.  Alabama  Midland  E'y 
Co.,  6  I.  C.  E.  23: 

**The  cost  of  the  services  in  railway  transporta- 
tion is  the  expense  of  the  two  terminals  and  the  in- 
termediate haul.  The  terminal  expenses  remain  the 
same  without  reference  to  the  length  of  the  haul. 
A  local  rate  covers  the  expenses  of  hotJi  terminals, 
but  a  division  of  a  through  rate  allotted  to  either 
of  the  terminal  carriers  of  the  through  line  can  only 
embrace  the  expense  of  one  terminal,  and  because  of 
this  difference  in  expense,  among  other  reasons,  local 
rates  are  made,  as  a  general  rule  much  higher  in 
proportion  to  the  length  of  haul  than  through  rates 
or  any  division  thereof. ' ' 

And  in  N.  P.  R'y  Co.  v.  Eeyes,  91  Fed.,  pp.  51-53: 

**  Length  of  haul  is  another  element  of  prime  im- 
portance in  determining  rates  for  transportation. 

^^  There  is  no  principle  of  railroading  that  is  bet- 
ter established  than  that  the  cost  of  doing  business 
rapidly  decreases  as  the  length  of  haul  increases." 

And  practically  all  freight  tariffs  whether  issued  by 


22 

the  carriers  themselves  or  promulgated  by  Commissions 
or  Legislatures  take  this  principle  into  account. 

In  order  that  this  principle  may  be  applied  to  the 
distribution  of  operating  expenses  between  interstate 
and  intrastate  traffic,  it  is  necessary,  of  course,  that  a 
distribution  shall  be  made,  as  indicated  in  third  line  of 
the  chart,  between  haulage  expenses  or  those  which  are 
dependent  upon  the  distance  which  a  shipment  or  a  pas- 
senger travels,  and  non-haulage  expenses,  or  those  which 
are  independent  of  the  distance  moved.  But,  inasmuch 
as  it  is  not  possible  to  compare  a  ton-mile  with  a  pas- 
senger-mile or  a  ton  with  a  passenger  as  expense  pro- 
ducing factors,  and  it  is  not  logical  to  make  a  distribu- 
tion on  gross  tonnage  of  trains  because  a  gross  ton-mile 
in  passenger  traffic  is  an  entirely  different  thing  from  a 
gross  ton-mile  in  freight  traffic,  it  is  necessary  first  to 
make  a  distribution  of  operating  expenses  between  the 
passenger  service  and  the  freight  service,  as  indicated 
in  line  2  of  the  chart. 


Distribution  Between  Passenger  Expenses  and  Freight 

Expenses. 

The  evidence  in  this  case  clearly  shows,  and  it  ap- 
pears to  be  the  general  opinion  among  railroad  account- 
ants, that  no  exact  distribution  of  operating  expenses 
between  the  passenger  traffic  and  the  freight  traffic  can 
be  effected.  But,  as  we  have  pointed  out,  it  is  necessary 
to  make  a  distribution  of  operating  expenses  between 
the  passenger  service  and  the  freight  service  with  as 
close  an  approximation  as  possible  in  order  that  similar 
units  of  service  may  be  used  as  factors  in  making  dis- 
tribution between  interstate  and  intrastate  expenses.  In 
making  this  distribution  of  expenses  between  passenger 
and  freight,  it  is  necessary  to  consider  not  only  those 
expenses  which  are  caused  by  the  movement  of  traffic, 
but  also  those  expenses  which  are  independent  of  the 
movement  of  traffic  but  which  are  required  by  and  which 
must  be  incurred  on  account  of  the  movement  of  traffic 


23 

—that  is,  it  is  necessary  to  consider  not  only  factors  of 
causation,  bnt  also  factors  of  requirement.  This  distinc- 
tion is  to  be  particularly  made  in  the  case  of  the  expense 
of  maintaining  the  company's  way  and  structures,  which 
expenses  are  due  partly  to  wear  or  traffic,  and  are  partly 
due  to  weather  stress,  independently  of  the  movement 
of  traffic.  In  making  these  distributions  there  must  also 
be  observed  that  principle  which  was  recognized  both  in 
the  accounting  testimony  given  on  behalf  of  complainant 
and  in  the  accounting  testimony  given  on  behalf  of  de- 
fendants—that all  items  which  can  be  allocated  either 
directly  or  by  the  opinion  of  experienced  men  must  be 
so  treated  before  distributions  are  effected  more  or  less 
arbitrarily  on  factors  of  use  or  causation  or  requirement. 
Many  of  the  expenses,  such  as  the  repairs,  renewals 
or  depreciations  of  freight  cars  and  of  passenger  cars, 
and  fuel  and  supplies  furnished,  respectively,  to  freight 
trains  and  to  passenger  trains,  and  the  wages  of  train 
men  on  passenger  trains  and  freight  trains,  etc.,  may  be 
apparently  directly  allocated  to  the  freight  or  passenger 
service,  and  were  so  distributed  by  complainant,  although 
it  appears  from  the  testimony  that  considerable  amounts 
so  charged  to  the  freight  service  are  really  chargeable 
in  part  to  the  passenger  service  on  account  of  expenses 
incurred  by  the  freight  service  for  the  passenger  serv- 
ice resulting  from  freight  trains  taking  sidings  for  pas- 
senger trains,  carriage  of  company's  material  on  freight 
trains,  etc.  Certain  expenses,  principally  yard  and 
switching  expenses,  were  distributed  between  the  freight 
service  and  the  passenger  service  in  accordance  with 
the  opinion  of  the  superintendents  under  whose  jurisdic- 
tion the  expenses  were  incurred.  These  distributions 
made  by  complainant  were  not  objected  to  by  defendants. 
Certain  other  expenses,  particularly  those  relating  to 
the  maintenance  of  the  company's  way  and  structures, 
were  distributed  in  part  as  exclusively  attributable  to 
one  traffic  or  the  other  traffic  in  accordance  with  the  opin- 
ion of  a  civil  engineer  who  was  thoroughly  informed  as 
to  the  lines  in  Alabama  concerning  which  he  testified. 
In  accordance  with  testimony  of  this  engineer,  complain- 


24 

ant  distributed  certain  percentages  of  a  number  of  pri- 
mary accounts  under  the  general  account  ^'Maintenance 
of  Way  and  Structures"  as  exclusively  attributable  to 
the  passenger  traffic,  and  the  expense  of  maintaining 
docks  and  wharves,  which  were  used  exclusively  for  the 
freight  traffic,  was  charged  to  the  freight  service. 

With  reference  to  those  expenses  under  the  general 
head  of  Maintenance  of  Way  and  Structures  which  are 
dependent  upon  the  volume  of  traffic,  it  is  shown  by  the 
opinion  of  engineers  best  informed  upon  the  subject  con- 
cerning which  they  testified  that  with  reference  to  the 
Louisville  &  Nashville  Eailroad  Company's  lines  in  the 
State  of  Alabama  a  passenger  train-mile  is  at  least  as 
destructive  or  at  least  as  potent  as  an  expense  producing 
factor  as  is  a  freight  train-mile.  And  this  opinion  is 
substantiated  by  the  statistics  of  railways  in  the  United 
States  as  published  by  the  Interstate  Commerce  Com- 
mission. The  wear  proportion  or  repairs  and  renewals 
of  water  stations  and  fuel  stations  is  probably  best  meas- 
ured by  the  number  of  tons  of  fuel  handled.  Complain- 
ant distributed  the  wear  proportion  of  way  and  structure 
accounts  in  accordance  with  these  principles. 

With  reference  to  those  expenses  under  general  cap- 
tion of  *' Maintenance  of  Way  and  Structures"  which  are 
independent  of  the  volumes  of  traffic,  it  appeared  that 
neither  the  volume  of  freight  traffic  nor  the  volume  of 
passenger  traffic  CAUSED  or  AFFECTED  the  expense, 
but  that  the  expense  is  proportionate  to  the  amount  of 
material  or  road  subjected  to  the  action  of  the  elements. 
And  it  appeared  further  that  at  least  as  good  a  road  and 
as  costly  a  road  would  be  required  for  conducting  ex- 
clusively a  passenger  traffic  as  would  be  required  for  con- 
ducting exclusively  a  freight  traffic.  And  therefore  it 
seems  that  a  logical  distribution  of  such  expenses  is  to  be 
made  on  the  basis  of  the  BEQUIREMENT  of  each  kind 
of  traffic;  and  complainant  effected  such  a  distribution 
by  charging  one-half  to  one  kind  of  traffic  and  one-half 
to  the  other  kind  of  traffic. 

The  fairness  and  reasonableness  of  the  distribution 


made  by  complainant  of  operating  expenses  between 
freight  and  passenger  were  testified  to  in  detail  by 
operating  and  aceoimting  officers  of  other  lines ;  and  as 
to  the  final  result  of  the  distribution  made  by  complain- 
ant it  appeared  from  the  testimony  that  where  com- 
plainant's accountants  had  erred  at  all,  they  had  erred 
in  charging  too  little  to  the  passenger  traffic  and  corres- 
pondingly too  much  to  the  freight  traffic,  with  the  result 
that  intrastate  traffic  was  ultimately  undercharged  and 
interstate  traffic  ultimately  overcharged  a  corresponding 
amount. 

A  larger  proportion  of  passenger  traffic  than  of 
freight  traffic  is  intrastate  and  a  larger  proportion  of 
passenger  expenses  than  of  freight  is  chargeable  to  in- 
trastate and  therefore  it  is  to  the  complainant's  interest 
in  the  distribution  between  freight  and  passenger  traffic 
to  charge  as  much  of  the  expense  to  passenger  as  pos- 
sible, and  it  is  to  defendant's  interest  to  charge  as  little 
as  possible  to  passenger  traffic  by  throwing  as  great  a 
charge  as  possible  against  the  freight  service.  In  view  of 
these  facts,  the  fairness  of  the  distribution  made  by  com- 
plainant under  the  issues  in  this  case  may  be  checked  in 
another  way.  The  schedules  of  freight  and  passenger 
rates,  having  been  made  and  adjusted  by  expert  traffic 
men  in  accordance  with  what  experience  has  taught  or 
necessity  has  required,  afford  to  a  certain  extent  a  fair 
measure  of  the  expenses  which  should  be  borne  by  the 
freight  traffic  and  passenger  traffic,  respectively,  without 
raising  the  question  of  distribution  between  interstate 
traffic  and  intrastate  traffic.  Expenses  might,  therefore, 
be  appropriately  divided  between  the  passenger  traffic 
and  the  freight  traffic  in  proportion  to  gross  operating 
revenues  in  each  class,  except  for  the  fact  that  the  object 
sought  in  the  preparation  of  the  Unit  of  Service  formula 
is  the  division  of  operating  expenses  without  reference  to 
the  revenues.  It  appears  from  the  reports  of  the  Inter- 
state Commerce  Commission  that  generally  throughout 
the  United  States  the  cost  of  earning  a  dollar  in  passen- 
ger traffic  is  at  least  as  great  as  the  cost  of  earning  a  del- 


26 

lar  in  freight  traffic,  and  the  uncontradicted  testimony  of 
traffic  men  familiar  with  conditions  on  the  Louisville  & 
Nashville  Eailroad  lines  in  Alabama  is  to  the  effect  that 
on  those  lines  it  cost  at  least  as  much  to  earn  a  dollar  in 
passenger  traffic  as  it  cost  to  earn  la,  dollar  in  freight 
traffic.  And  the  testimony  of  accounting  and  operating 
officials  for  other  lines  is  to  the  same  general  eifect. 
(Record,  pp.  3661,  3914,  3992,  6314,  6317.) 

The  distribution  between  freight  and  passenger  on 
a  revenue  basis  would  be  represented  as  follows: 


Exhibit 

W.  A.  C. 

Passenger 

Earnings. 

No. 

Total. 

Passenger. 

Percentage. 

1906-1907 

(55) 

$8,325,545.72 

$2,254,362.67 

27.08 

1907-1908 

(56) 

7,572,809.88 

2,214,348.98 

29.24 

1908-1909 

(57) 

7,495,705.23 

2,029,641.04 

27.08 

The  following  table  (which  can  be  verified  by  ref- 
erence to  Exhibits  W.  A.  C.  x-19,  W.  A.  C.  x-20,  and  W. 
A.  C.  x-21)  affords  a  comparison  of  the  amounts  which 
would  be  charged  to  passenger  on  a  straight  Revenue 
basis,  and  the  amounts  which  were  charged  on  the  Unit 
of  Service  basis : 

Passenger  and  Passenger  and 

Percentages  on  Percentages  on 

Operating  Expenses.             Total.             Eevenue  Basis.  U.  of  S.  Basis. 

1906-1907     (x-19)              $6,303,912.26           $1,707,099.63  $1,629,760.14 

27.08%  25.85% 

1907-1908     (x-20)                6,064,891.94             1,773,374.40  1,601,000.71 

29.24%  26.40% 

1908-1909     (x-21)                5,203,397.28             1,409,079.98  1,385,952.33 

27.08%  26.44% 

It  will  be  noted  for  the  year  ended  June  30,  1908, 
there  would  have  been  charged  to  passenger  traffic  on 
a  straight  Revenue  basis  29.24%  of  the  total  expenses, 
or  $1,773,374.40,  instead  of  the  amount  of  $1,601,000.71, 
or  26.40%  of  the  whole;  or,  in  other  words,  there  would 
have  been  charged  to  passenger  traffic  on  a  straight 
Revenue  basis  nearly  11%  (10.75%)  more  than  was 
charged.  The  fact,  therefore,  that  the  distribution  made 
on  the  Unit  of  Service  charges  less  to  the  passenger 
traffic  than  would  be  charged  on  basis  of  Gross  Ope- 


27 

rating  Revenues — is  at  least  strongly  persuasive  of  the 
fact  that  with  respect  to  the  distribution  between  pas- 
senger traffic  and  the  freight  traffic,  the  Unit  of  Service 
Basis  errs,  if  it  errs  at  all,  in  favor  of  the  passenger 
traffic,  and  consequently  in  favor  of  the  intrastate  traffic. 


Distribution  Between  Haulage  and  Non-Haulage 
Expenses. 

The  distribution  of  total  expenses  between  the  pas- 
senger traffic  and  the  freight  traffic  having  been  effected 
the  next  division  to  be  made  is  one  of  the  passenger  ex- 
penses between  haulage  and  non-haulage  passenger  ex- 
penses, and  of  the  freight  expenses  between  haulage  and 
non-haulage  freight  expenses,  as  indicated  by  line  3  of 
chart,  supra.  The  distinction  between  haulage  expenses 
and  non-haulage  expenses  is  by  no  means  novel.  Accord- 
ing to  the  so-called  *' Natural  system''  of  adjusting  rail- 
way charges  to  cost  of  service  which 

'*was  adopted  in  Alsace-Lorraine  in  1871;  by  the 
connecting  roads,  on  through  business  to  or  from 
these  provinces,  in  1872;  by  Baden  in  1873;  by 
Hungary  in  1874.  The  rate  on  any  class  of  goods 
consisted  of  a  fixed  charge  to  cover  terminal  ex- 
penses, independent  of  distance,  plus  a  rate  per  mile 
to  cover  movement  expenses.  For  instance,  the 
tariff  of  Southwestern  Germany,  reduced  to  Ameri- 
can units,  was  approximately  as  follows,  per  tan 
of  each  class  of  goods: 

Mileage 

Terminal  Rates 

cents  cents 

Express 55  9.00 

Parcels 44  3.60 

Box  car 

Half  car-load  per  ton 33  2.70 

"Whole  car-load  per  ton 22  2.25 


28 

Platform  car 

Half  car-load  per  ton 33  1.80 

Whole  car-load  per  ton 22  1.35 

Coal 33  0.90^' 

(Railroad  Transportation — Hadley — New  York  and 
London  1886— pages  243-244.) 

In  1879  the  McGraham  scale,  npon  which  is  based 
the  Trunk  Line  Rate  System,  was  readjusted  to  conform 
more  closely  to  the  cost-of-service  principle. 

*  *  The  plan,  as  thus  revised,  is  the  one  still  in  force. 
It  recognizes  that  railway  charges  should  he  propor- 
tioned to  the  length  of  haul,  so  far  as  actual  costs  of 
haulage  are  concerned;  but  it  first  eliminates  those 
constant  elements  in  cost  which  do  not  vary  with  dis- 
tance. The  original  McGraham  scale  made  no  such 
distinctions.  The  expenses  at  terminals,  such  as 
loading  and  unloading,  are,  of  course,  entirely  in- 
dependent of  the  distance  covered  by  the  shipment. 
These,  being  determined  roughly  by  experimenta- 
tion, are  first  deducted  from  an  assumed  Chicago 
rate.  From  the  remainder  the  rate  per  mile  by  the 
shortest  route  to  New  York  (920  miles)  is  then  cal- 
culated by  simple  division.  This  rate  per  mile  is 
then  applied  to  the  distance  to  any  intermediate 
point,  and  the  terminal  charge  is  again  added.  Thus 
a  rate  is  found  which  is  reduced  to  a  percentage  of 
the  original  Chicago  base  rate.'' 

(Railway  Problems — Ripley — Ginn  &  Co.,  Boston 
1907— pages  317-318.) 

*  *  The  official  rule  from  Proceedings  of  the  Joint 
Executive  Committee,  June  12  and  13,  1879,  is  as 
follows : 

'*  *  First:  That  from  all  points  being  less  distant 
from  New  York  than  Chicago  new  percentages  be 
adopted  for  making  up  rates  on  east-bound  freight 


99 

upon  the  following  basis:  the  percentages  from 
points  of  the  same  or  no  greater  distance  from  Chi- 
cago, to  continue  as  heretofore. ' 

*'  ^Second:  That  6  cents  per  hundred  pounds 
be  first  deducted  from  an  assumed  rate  of  25  cents 
per  100  pounds,  Chicago  to  New  York,  said  deduction 
to  represent  the  fixed  charges  at  both  ends  of  long 
or  short  hauls.' 

ii  < Third:  That,  after  such  deduction,  the  rate 
per  mile,  which  the  remainder,  or  19  cents  per  100 
pounds,  produces  from  Chicago  to  New  York,  shall 
be  charged  per  mile  from  all  common  points  named 
in  the  first  section,  according  to  the  percentages  of 
distance  shown  by  the  table  adopted  at  Chicago, 
April  30,  1876,  to  which  results  so  computed  the  6 
cents  per  100  pounds  of  fixed  charges  first  above 
deducted  shall  be  again  added,  and  the  percentage 
of  the  Chicago  rate  of  25  cents,  produced  by  such 
additions,  shall  thereafter  constitute  the  percentage 
of  the  Chicago  rate,  which  shall  be  subsequently 
charged  from  the  points  named  in  the  first  section. 

For  Illustration. 

Chicago  to  New  York,  per  100  lbs 25o 

Less  fixed  charges,  per  100  lbs 6 

Basis  of  rate  for  computation 19c 

Columbus,  Ohio,  as  at  present  70  per  cent  of 

Chicago  net  rate,  will  be 13.3c 

To  which  add  the  fixed  charges 6 


19.3o 

And  the  new  percentages  from  Columbus  will 
hereafter  be  77-2-10  per  cent  of  Chicago,  in  lieu  of 
70  per  cent,  as  at  present.'  " 

(Idem,  Note  to  page  318.) 

It  will  be  noted  that  the  terminal  or  non-haulage 
charge  is  24  per  cent  of  the  total  charge  for  a  haul  from 


30 

Chicago  to  New  York,  920  miles.  For  a  distance  of,  say, 
275  miles  (the  approximate  average  taul  of  interstate 
freight  on  the  L.  &  N.  System)  the  non-haulage  charge  is 
over  51  per  cent  of  the  total  charge ;  and  for  a  dis- 
tance of,  say,  30  miles  (the  approximate  average  hanl  of 
intrastate  freight  on  L.  &  N.  Lines  in  Alabama)  the  non- 
haulage  charge  is  about  90  per  cent  of  the  total  charge. 

In  1835,  Sir  Rowland  Hill,  the  author  of  the  Penny 
postage  system  on  investigation  found  that  the  non-haul- 
age cost  of  the  mail  was  66%  of  the  whole  cost,  and  that 
the  average  haulage  cost  of  a  letter  was  one  cent.  And 
that  the  cost  of  haulage  did  not  increase  proportionately 
with  the  distance.  As  the  result  of  his  investigation  the 
postage  on  letters  in  England  was  fixed  at  two  cents. 

Clements,  Commissioner,  in  the  case  of  the  Board  of 
Trade  of  Troy,  Ala.,  v.  Alabama  Midland  Railway  Com- 
pany (6  I.  C.  R.  23),  made  clear  the  distinction  between 
haulage  and  non-haulage  cost  in  the  quotation  above 
made  from  his  opinion  in  that  case. 

And  the  distribution  of  expenses  between  haulage 
and  non-haulage  does  not  present  any  great  difficulties. 
Haulage  expenses  are  simply  those  which  are  affected  by 
distance,  and  non-haulage  expenses  are  those  which  are 
not  affected  by  distance.  Many  of  the  Primary  Operat- 
ing Expense  accounts  are  assigned  by  complainant  in 
their  entirety  to  haulage  and  non-haulage,  and  defend- 
ants admit  (see  p.  188  of  their  brief)  that  the  distribu- 
tion of  such  accounts  has  been  properly  effected.  Some 
of  the  accounts  are  assigned  partly  to  haulage  and  partly 
to  non-haulage,  and  against  the  distribution  made  of 
such  accounts  defendants  make  no  objection,  except  as 
to  the  distribution  of  expenses  for  freight  car  repairs, 
renewals  and  depreciation.  Complainant  has  distributed 
these  accounts  in  part  to  haulage  and  in  part  to  non- 
haulage;  defendants  claim  the  entire  charges  to  these 
accounts  should  be  treated  as  haulage  items.  The  un- 
contradicted testimony  in  the  record  (see  also  South  & 
North  Record,  pp.  2177-2178)  supports  the  distribution 
made  by  complainant;  and  it  further  appears  from  the 


31 

testimony  of  expert  railroad  accountants  not  connected 
with  the  company  (Krebs,  p.  4131;  Langhton,  p.  4277) 
that  the  distribution  made  by  complainant  between  haul- 
age and  non-haulage  is  on  the  whole  fair,  and  that  all 
doubts  have  been  resolved  in  favor  of  the  non-haulage 
items,  that  is,  that  in  all  cases  of  doubt  the  smaller 
amounts  have  been  charged  to  the  non-haulage  accounts, 
and  consequently  the  smaller  amounts  have  been  ulti- 
mately charged  to  the  intranstate  traffic. 

Distribution   of   Haulag-e   and   Non-Haulag'e   Expenses 
Between  Interstate  and  Intrastate  Traffic. 

Distribution  of  expenses  between  haulage  items  and 
non-haulage  items  having  been  effected  the  next  distribu- 
tion made  under  the  Unit  of  Service  plan  of  dividing 
operating  expenses  was  one  between  interstate  and  in- 
trastate haulage  and  interstate  and  intrastate  non-haul- 
age, separately  for  passenger  expenses  and  for  freight 
expenses,  as  shown  by  line  4  on  the  chart,  supra.  These 
distributions  were  made  on  basis  of  equalized  ton-miles 
and  equalized  passenger-miles  for  the  division  of  haul- 
age expenses,  and  on  basis  of  ton-terminals  and  passen- 
ger-terminals for  the  division  of  non-haulage  expenses, 
thus  carrying  out  the  idea  expressed  by  Commissioner 
Clements  in  Board  of  Trade  of  Troy  v.  Alabama  Mid- 
land Railway,  supra,  and  by  Judge  Sanborn  in  Shepard 
V.  Northern  Pacific  Railway,  supra,  that  the  cost  of  the 
services  in  railway  transportation  is  the  expense  of  the 
two  terminals  and  the  intermediate  haul. 

If  haulage  expenses,  or  distance  expenses,  were  ap- 
portionable  strictly  in  accordance  with  the  distance 
which  a  unit  travels,  they  might  properly  be  divided  be- 
tween interstate  traffic  and  intrastate  traffic  on  a  basis 
of  passenger-miles  for  the  passenger  expenses  and  on 
the  basis  of  ton-miles  for  the  freight  expenses.  But,  as 
was  indicated  by  Judge  Sanborn  in  Shepard  v.  Northern 
Pacific  Railway  Co.,  supra  (184  Fed.  781) — that  the 
haulage  charges  should  be  the  same  per  mile  for  the 


32 

long  haul  as  for  the  short  haul  is  contrary  to  the  rule 
generally  applied  in  rate  making — ^before  using  the  ton- 
mile  and  the  passenger-mile  (which  represent  products 
of  amounts  of  business  multiplied  by  the  distances  which 
those  amounts  of  business  are  carried)  as  units  for  the 
distribution  of  haulage  expenses,  complainant  endeavored 
to  equalize  as  far  as  possible  the  more  expensive  short 
haul  unit  with  the  less  expensive  long  haul  unit.  It  is 
shown  without  contradiction  in  the  record  that  the  haul- 
age cost  for  the  short  haul  intrastate  unit  per  mile  is 
greater  than  the  haulage  cost  for  the  long  haul  interstate 
unit  per  mile,  and  the  principle  recognizing  the  extra  cost 
of  intrastate  or  short  haul  traffic  runs  through  the  deci- 
sions; this  extra  cost  is  attributable  to  many  causes,  such 
as  lighter  loads  of  local  trains,  greater  expenses  of  trains 
from  longer  time  consumed  and  more  frequent  stops 
and  startings  of  trains  engaged  in  local  traffic,  but  in 
order  to  support  theory  by  experiment  complainant  had 
made  a  special  test  of  the  business  carried  on  all  trains 
in  the  State  of  xMabama  for  one  week.  In  this  test  the 
actual  expense  for  certain  allotable  accounts,  the  same  in 
all  cases,  was  found  separately  for  each  train,  and  the 
expenses  of  each  separate  train  were  distributed  between 
interstate  traffic  and  intrastate  traffic  upon  the  assump- 
tion that  when  hauled  on  the  same  train  the  intrastate  or 
short  haul  traffic  cost  as  much  and  no  more  per  ton-mile 
or  per  passenger-mile  than  the  interstate  or  long  haul 
traffic  cost.  This  assumption  is  shown  by  uncontradicted 
testimony  in  the  record  to  be  unduly  favorable  to  the  in- 
trastate traffic,  it  appearing  that  the  distribution  of  ex- 
penses for  passenger  trains  should  be  made  upon  some 
factor  intermediate  between  the  passenger  and  the  pas- 
senger-mile, and  that  the  distribution  of  expense  for 
freight  trains  should  be  made  upon  some  factor  inter- 
mediate between  the  ton  and  the  ton-mile.  Distributions 
made  upon  the  passenger-mile  and  ton-mile,  respectively, 
for  the  separate  trains,  necessarily  overburdened  to  some 
extent  the  long  haul  interstate  traffic  and  the  resulting 
excess  cost  per  haulage  unit  of  intrastate  traffic  as  com- 


33 

pared  with  the  cost  per  haulage  unit  of  interstate  traffic 
obtained  upon  the  assumption  stated  was  necessarily  less 
than  the  real  excess  haulage  cost  of  handling  the  intra- 
state traffic,  and  the  resulting  adjustment  of  haulage 
units  upon  which  haulage  operating  expenses  were  di- 
vided necessarily  charged  less  to  the  intrastate  traffic 
than  might  have  been  charged  to  that  traffic.  It  appears 
from  the  testimony  of  both  traffic  and  accounting  officials 
familiar  with  the  conditions  surrounding  the  business  of 
the  Louisville  &  Nashville  Lines  in  the  State  of  Alabama, 
that  the  period  adopted  for  making  the  test  was  a  fairly 
representative  period,  and  it  further  appears  from  the 
testimony  (e.  g.,  Mr.  Colston,  pp.  6508,  et  seq.)  that  it  is 
proper  to  use  ton-miles  and  passenger-miles  as  equalized 
for  train  expenses  as  a  basis  for  the  apportionment  of 
all  haulage  expenses.  (See  also  Krebs,  pp.  4126-4127, 
and  Laughton,  pp.  4271-4272.)  For  the  purpose  of  dis- 
tributing haulage  expenses,  complainant  equalized  the 
intrastate  ton-miles  with  the  interstate  ton-miles  and  the 
intrastate  passenger-miles  with  the  interstate  passenger- 
miles  by  multiplying  the  intrastate  units  by  the  percent- 
ages which  the  haulage  costs  per  intrastate  haulage  unit 
were  ascertained  to  be  of  the  haulage  costs  per  inter- 
state haulage  unit  in  the  special  test  which  was  made  for 
that  purpose. 

The  reduction  of  interstate  and  intrastate  tour  and 
passengers  to  interstate  and  intrastate  ton-terminals  and 
passenger- terminals  was  affected  on  basis  of  an  actual 
count  of  the  terminals  made  by  interstate  units  and  the 
terminals  made  by  intrastate  units  in  two  months  of  each 
fiscal  year.  The  percentage  of  terminals  to  tons  and  the 
percentage  of  terminals  to  passengers  for  each  class  of 
traffic,  interstate  and  intrastate,  having  been  separately 
determined  for  the  two  months  in  each  fiscal  year,  the 
same  percentage  was  used  to  ascertain  the  number  of 
terminals  made  by  the  total  number  of  tons  and  total 
number  of  passengers  during  the  year. 


34 


Synthesis. 

The  passenger  interstate  haulage  and  the  passenger 
interstate  non-haulage  having  been  separately  ascer- 
tained, as  outlined  above,  the  total  amount  of  passenger 
interstate  expenses  was  arrived  at,  and  in  a  like  manner 
by  a  combination  of  passenger  intrastate  haulage  ex- 
penses and  passenger  intrastate  non-haulage  expenses 
the  total  passenger  intrastate  expenses  were  arrived  at 
and  by  a  combination  of  freight  interstate  haulage  ex- 
penses and  freight  interstate  non-haulage  expenses  the 
total  amount  of  freight  interstate  expenses  was  arrived 
at,  and  by  a  combination  of  freight  intrastate  haulage 
expenses  and  freight  intrastate  non-haulage  expenses 
the  total  amount  of  freight  intrastate  expenses  was  ar- 
rived at,  as  indicated  in  fifth  line  of  chart,  supra. 

And  by  combining  passenger  interstate  expenses  with 
freight  interstate  expenses  the  total  interstate  expenses 
were  arrived  at ;  and  by  combining  passenger  intrastate 
expenses"  with  freight  intrastate  expenses  the  total  in- 
trastate expenses  were  arrived  at,  as  shown  in  the  last 
line.  No.  6  of  chart,  supra. 


ILLUSTEATION  OF  THE  UNIT  OF  SEEVICE 
BASIS  OF  DIVIDING  OPEEATING  EXPENSES 
AS  APPLIED  TO  THE  EXPENSES  FOR  THE 
FISCAL  YEAR  ENDED  JUNE  30,  1909. 

It  will  probably  conduct  to  a  clearer  understanding  of 
the  plan  to  show  its  actual  operation  as  applied  in  detail 
to  the  expenses  of  some  particular  period.  The  follow- 
ing illustration  shows  the  result  of  applying  to  the 
operating  expenses  of  the  fiscal  year  ended  June  30, 
1909,  the  Unit  of  Service  basis  for  dividing  operating 
expenses  as  between  interstate  and  intrastate  traffic. 
For  convenience  the  chart,  supra,  is  repeated  on  the  op- 
posite page,  and  the  amounts  represented  by  each  cir- 
cle are  shown,  and  will  be  explained  in  the  illustration. 


ns> 


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35 

The  actual  amount  of  operating  expenses 
for  complainant's  lines  in  the  State  of 
Alabama  for  the  fiscal  year  ended  June 
30,  1909,  represented  by  the  single  circle 
in  line  1  of  the  chart,  excluding  deprecia- 
tion of  way  and  structures  and  not  in- 
cluding taxes,  amounted  to  (Exhibits  W. 
A.  C.  63,  W.  A.  C.  65,  W.  A.  C.  75  and 
W.  A.  C.  79)   $5,203,397.28 

The  distribution  of  this  total  into  passenger 
expenses  and  freight  expenses,  repre- 
sented by  the  two  circles  in  line  2,  re- 
sulted in  the  following  amounts  (Ex- 
hibits W.  A.  C.  x-21  and  W.  A.  0.  x-29) : 

Passenger  expenses  $1,385,952.33 

Freight  expenses   $3,817,444.95 

It  will  be  noted,  as  above  shown,  that  the  passenger 
expenses  are  26;44%  of  the  total  expenses.  The  passen- 
ger earnings  for  this  year  amounted  to  $2,029,641.04  out 
of  a  total  of  $7,495,705.23  (Exhibit  W.  A.  C.  57)  or  to 
27.08%.  If  the  distribution  between  passenger  and 
freight  had  been  made  by  complainant  upon  a  Gross 
Earnings  basis,  instead  of  upon  the  Unit  of  Service  basis, 
there  would  have  been  charged  by  complainant  to  pas- 
senger traffic  the  amount  of  $1,409,079.98  instead  of  the 
amount  of  $1,385,952.33  actually  charged. 

The  distribution  of  passenger  expenses  and  of  freight 
expenses  into  passenger  haulage  expenses,  passenger 
non-haulage  expenses,  freight  haulage  expenses  and 
freight  non-haulage  expenses,  indicated  by  the  four  cir- 
cles in  line  3  of  chart  resulted  in  the  following  amounts 
(W.  A.  C.  x-21) : 

Passenger  $1,385,952.33 

Haulage    $1,138,447.85 

Non-Haulage   247,504.48 

Freight   3,817,444.95 

Haulage    . . .  ., 2,486,655.61 

Non-Haulage   1,330,789.34 


36 

The  percentages  of  non -haulage  to  total  expenses  are 
much  lower  than  the  percentages  of  non-haulage  em- 
braced in  the  rate-making  scheme  of  the  Central  Freight 
Association  and  Trunk  Line  Territories  above  noticed, 
where  the  haulage  and  non-haulage  distinction  is  ob- 
served. 

The  statistics  from  which  equalized  passenger-miles, 
equalized  ton-miles,  passenger-terminals  and  ton-termi- 
nals were  arrived  at  for  the  distribution  between  inter- 
state and  intrastate  traffic  separately,  of  passenger  haul- 
age and  non-haulage  expenses  and  freight  haulage  and 
non-haulage  expenses,  as  indicated  by  the  eight  circles 
in  line  4  of  chart,  are  as  follows : 

Passenger-miles  (Becord,  p.  2149) 

Interstate 37,793,739 

Intrastate 34,318,389 

Total    72,112,128 

Passengers  (Record,  p.  2149) 

Interstate 425,309 

Intrastate  1,322,802 

Total    1,748,111 

Ton-miles  (Record,  p.  2149) 

Interstate 465,570,834 

Intrastate  202,138,791 

Total    667,709,625 

Tons  (Record,  p.  2149) 

Interstate   4,315,751 

Intrastate  7,060,260 

Total 11,376,011 

From  the  special  test  which  complainant 
caused  to  be  made  in  order  to  ascertain 
relative  haulage  costs  of  interstate  and 
intrastate  traffic,  it  was  ascertained 
(Exhibit  W.  A.  C.  72)  that  the  percent- 
age which  the  intrastate  expense  per 
passenger-mile  is  of  the  interstate  ex- 
pense per  passenger-mile  is 180.317% 


37 

and  (Exhibit  W.  A.  C.  71)  that  the  per- 
centage that  the  intrastate  expense  per 
ton-mile  is  of  the  interstate  expense  per 

ton-mile  is 159.259% 

As  a  result  of  the  count  of  terminals  for 
the  two  months  in  the  fiscal  year  it  was 
ascertained  (Record,  p.  1684)  that  100 
interstate  passengers  made,  .terminals  75.42 

while  100  intrastate  passengers  made . . 

terminals  189.26 

and  (Record,  p.  1685)  that  100  inter- 
state tons  made terminals  65.95 

and  that  100  intrastate  tons  made 

terminals  169.62 

And  the  processes  of  equalization  of  passenger-miles 
and  ton-miles,  the  determination  of  passenger-terminals 
and  ton-terminals,  and  distributions  on  basis  of  equalized 
passenger-miles  and  ton-miles  for  haulage  expenses  and 
on  basis  of  passenger-terminals  and  ton-terminals  for 
non-haulage  expenses  of  the  haulage  and  non-haulage 
passenger  expenses  and  of  the  haulage  and  non-haulage 
freight  expenses,  represented  by  the  third  line  of  circles 
in  chart,  for  the  purpose  of  arriving  at  the  interstate  and 
intrastate  expenses,  haulage  and  non-haulage,  passenger 
and  freight,  separately,  represented  by  the  fourth  line  of 
circles  in  chart,  are  shown  by  the  following  tables : 

HAULAGE  EXPENSES  PASSENGER. 
Percentages  Passengers 


Passenger 

Applied  to         Miles       Percentage 

Haulage 

Miles. 

Equalize.      Equalized.     Equalized. 

Expenses. 

Interstate-. 

._.  37,793,739 

37,793,739         37.92 

431,699.42 

Intrastate-. 

._-  34,318,389 

180,317         61,881,889         62.08 

706,748.43 

Total  — 

—  72,112,128 

99,675,628       100.00 

1,138,447.85 

NON-HAULAGE  EXPENSES  PASSENGER. 

Percentages 

Non- 

Applied  to  Passengers  Percentages 

Haulage 

Passengers. 

Equalize.     Equalized.     Equalized. 

Expenses. 

Interstate- 

425,309 

75.42              320,768         11.36 

28,116.51 

Intrastate- 

—     1,322,802 

189.26           2,503,535         88.64 

219,387.97 

Total  — 

—     1,748,111 

2,824,303       100.00 

247,504.48 

38 

HAULAGE  EXPENSES  FREIGHT. 


Percentages 
Applied  to 
Ton-Miles.     Equalize. 

Ton 

Miles      Percentages 
Equalized.     Equalized. 

Haulage 

Expenses. 

Interstate.. 

.-465,570,834 

465,570,834         59.12 

1,470,110.79 

Intrastate-. 
Total  -__. 

.-202,138,791       159.259 
.-667,709,625 

321,924,216         40.88 
787,495,050       100.00 

1,016,544.82 
2,486,655.61 

NON-HAULAGE  EXPENSES  FEEIGHT. 

Percentages 
Applied  to 
Tons.         Equalize. 

Tons       Percentages 
Equalized.    Equalized. 

Non- 
Haulage 
Expenses. 

Interstate— 

..     4,315,751          65.95 

2,846,238         19.20 

255,511.56 

Intrastate— 
Total—. 

.-     7,060,260       169.62 
._  11,376,011 

11,975,613         80.80 
14,821,851       100.00 

1,075,277.78 
1,330,789.34 

It  will  be  noted  that  these  results  differ  in  some  cases 
by  the  amount  of  1  cent  from  the  results  shown  on 
Exhibit  W.  A.  C.  x-29,  which  discrepancy  is  explained 
by  the  fact  shown  by  Mr.  Colston,  Kecord,  page  2796, 
that  distribution  on  Exhibit  W.  A.  C.  x-29  by  primary 
accounts  was  made  merely  for  convenience  of  counsel 
for  defendants.  The  subdivisions  used  by  complainant 
were  arrived  at  by  application  of  the  percentages  to 
total  haulage  and  non-haulage  expenses,  freight  and 
passenger  separately.  The  figures  on  Exhibit  W.  A.  C. 
x-29  exhibit  the  slight  discrepancy  shown  by  reason  of 
gain  or  loss  in  the  giving  and  taking  of  fractional  parts 
of  a  cent  for  the  separate  or  primary  accounts. 

The  processes  of  sjmthesis  by  which  the  passenger 
interstate,  passenger  intrastate,  freight  interstate  and 
freight  intrastate  expenses,  represented  by  the  four  cir- 
cles in  line  5,  are  obtained  are  apparent.  The  sum  of 
passenger   haulage    interstate 

expenses   $   431,699.42 

and  passenger  non-haulage  in- 
terstate expenses  28,116.51 

equals  the  amount  of  passen- 
ger interstate  expenses $   459,815.93 


39 

The  sum  of  passenger  haulage 

intrastate  expenses 706,748.43 

and  passenger  non-haulage  in- 
trastate expenses  219,387.97 

equals  the  amount  of  passen- 
ger intrastate  expenses   926,136.40 

The  sum  of  freight  haulage  in- 
terstate expenses   1,470,110.79 

and  freight  non-haulage  inter- 
state expenses 255,511.56 

equals  the  amount  of  freight 

interstate  expenses 1,725,622.35 

The  sum  of  freight  haulage  in- 
trastate expanses  1,016,544.82 

and  freight  non-haulage  intra- 
state expenses 1,075,277.78 

equals  the  amount  of  freight 

intrastate  expenses 2,091,822.60 

And  in  like  manner  the  sum  of 
passenger  interstate  expenses,      459,815.93 
and  freight  interstate  expenses    1,725,622.35 
equals  the  amount  of  total  in- 
terstate expenses  shown  in  line 

6  (and  in  Exhibit  W.  A.  C.  75)  2,185,438.28 
And  the  sum  of  passenger  in- 
trastate expenses  926,136.40 

and  freight  intrastate  expenses  2,091,822.60 
equals  the  amount  of  total  in- 
trastate   expenses    shown    in 
line  6  (and  Exhibit  W.  A.  C. 
75)    $3,017,959.00 

Depreciation  of  Way  and  Structiires. 

But  the  expenses  distributed  above  do  not  include 
depreciation  of  way  and  structures,  for  which  provision 


40 

must  be  made.  The  amount  of  this  depreciation  not 
taken  care  of  and  the  distribution  between  interstat'O 
and  intrastate  traffic  are  as  follows  (Exhibits  W.  A.  C. 
11,  W.  A.  C.  63,  W.  A.  C.  65  and  W.  A.  C.  79) : 

Total   $263,835.61 

Interstate  117,137.36 

Intrastate  146,698.25 

Adding  these  amounts  of  depreciation,  interstate  and 
intrastate,  respectively,  to  the  total  interstate  and  intra- 
state expenses  obtained  in  above  analysis,  we  arrive  at 
the  following  amounts  of  operating  expenses,  including 
depreciation  on  way  and  structures,  but  not  including 
taxes : 

Interstate    $2,302,575.64 

Intrastate    3,164,657.25 

Total  ,. . . .  5,467,232.89 

The  operating  revenues  for  the  same  fiscal  year,  in- 
terstate, intrastate  and  total,  were  as  follows  (Exhibit 
W.  A.  C.  79) : 

Interstate $4,331,660.36 

Intrastate 3,164,044.87 

Total  7,495,705.23 

from  which  it  will  be  noted  that  the  ratios  of  operating 
expenses  as  adjusted  to  operating  revenues  are: 

For  interstate  traffic 53.16% 

For  intrastate  traffic 100.02% 

For  all  traffic ,. . .   72.94% 

and  it  will  be  further  noted  that  the  excess  cost 
of  earning  a  dollar  in  intrastate  traffic  over  the 
cost  of  earning  a  dollar  in  all  traffic  is  something 

over 27  cents 

or  27%  of  the  revenue,  or  approximately  the 
average  excess  cost  shown  by  the  algebraical 
calculation  for  three  years 26  cents 


41 

From  distributions  similarly  made  on  the  Unit  of 
Service  basis  for  the  fiscal  years  ending  June  30,  1906, 
1907,  1908  and  1910,  it  appears  that  the  excess  cost  of 
earning  a  dollar  in  intrastate  traffic  over  the  average 
cost  of  earning  a  dollar  in  all  traffic  has  varied  from 
23.21%  for  the  fiscal  year  ended  Jnne  30,  1906,  to  29.20% 
for  the  fiscal  year  ended  Jnne  30,  1910  (Record,  pp.  1598 
and  1613;  Exhibits  W.  A.  C.  79  and  W.  A.  C.  79-a), 
which  results  again  support  and  are  supported  by  the 
average  results  shown  by  the  algebraical  calculation  for 
the  three  years  1907,  1908  and  1909. 


Taxes. 

The  total  amount  of  taxes  for  the  fiscal  year  ended 
June  30,  1909,  was  $311,293.15  (Exhibits  W.  A.  C.  65  and 
W.  A.  C.  66),  of  which  amount  there  was  charged  to 
interstate  traffic  $127,723.55  and  to  intrastate  traffic 
$183,569.60.  License  taxes  were  charged  in  their  entirety 
to  intrastate  traffic,  and  all  other  taxes  were  divided  be- 
tween interstate  and  intrastate  traffic  on  basis  of  operat- 
ing expenses  as  adjusted. 

In  view  of  the  overwhelming  preponderance  of  the 
testimony  in  favor  of  the  distributions  made  on  the  Unit 
of  Service  basis  or  plan  of  dividing  operating  expenses, 
and  in  view  of  the  agreement  of  its  results  with  expert 
testimony  as  to  the  average  excess  cost  of  earning  a  dol- 
lar in  interstate  traffic  over  the  cost  of  earning  a  dollar 
in  all  traffic,  and  in  further  view  of  the  corroboration  af- 
forded by  the  algebraical  calculation,  it  seems  that  the 
amounts  of  operating  expenses  and  taxes  as  stated  by 
complainant,  and  as  divided  on  the  Unit  of  Service  basis 
or  plan  of  dividing  operating  expenses,  afford  the  proper 
answer  to  Inquiry  21,  and  they  are  approved  as  set  forth. 

Of  course,  the  Unit  of  Service  basis  depends,  in  a 
considerable  degree,  as  is  forcibly  pointed  out  by  defend- 
ants in  their  argument,  on  the  opinion  of  experts  as  to 
many  matters,  such,  for  instance,  as  the  percentages  of 
the  primary  accounts  in  block  of  Maintenance  Way  & 


43 

Structures  accounts  wMch  pertain  peculiarly  to  passen- 
ger business,  and  this,  if  it  stood  alone,  might  generate 
more  or  less  doubt  about  the  result.  But  when  this  ex- 
pert proof  is  practically  uncontradicted  and  the  result 
of  the  method  is  supported  by  the  algebraical  calcula- 
tions above  pointed  out,  and  just  as  forcibly  by  the 
analysis  of  the  accounts  as  they  stand  in  the  books  of  the 
company,  also  above  shown,  there  are  independent  double 
demonstrations  that  the  conclusion  is  absolutely  accurate 
in  this  case. 

And  it  is  Avell  enough  to  add  that  the  same  mathe- 
matical demonstration  was  made  in  the  South  &  North 
Alabama  Eailroad  case  with  practically  the  same  re- 
sults. 

When  the  data  for  Algebra  are  given,  and  the  figures 
involve  the  relation  sought,  there  is  no  option  left  about 
accepting  the  result. 

And  that  the  data  and  figures  and  the  operation  and 
results  are  correct,  we  know  from  the  proof  as  a  fact, 
and  may  infer,  if  there  was  any  doubt,  from  the  circum- 
stance that  they  are  unas sailed  and  unanswered  in  argu- 
ment. 


DETAILS  BY  PRIMAEY  ACCOUNTS  OF  THE  DIS- 
TRIBUTIONS BETWEEN  FREIGHT  TRAFFIC 
AND  PASSENGER  TRAFFIC  AND  BETWEEN 
HAULAGE  AND  NON-HAULAGE  ITEMS  WITH 
BRIEF  EXPLANATION  IN  SOME  CASES  OF 
THE  REASONS  FOR  THE  DISTRIBUTIONS 
MADE. 

The  following  details  of  the  formulas  used  in  dis- 
tributing operating  expenses  between  freight  traffic  and 
passenger  traffic  and  between  haulage  items  and  non- 
haulage  items,  together  with  brief  explanations  in  some 
cases  of  the  reasons  for  the  distributions  made,  were 


4Q 

compiled  by  Mr.  Geo.  W.  Lamb,  Second  Assistant  Comp- 
troller of  the  Louisville  &  Nashville  Eailroad  Company, 
from  the  records  in  the  Alabama  Rate  Cases,  and  have 
been  furnished  by  him  for  the  purposes  of  this  memo- 
randum. 

In  considering  these  formulas,  it  should  be  borne  in 
mind  that,  pursuant  to  the  permission  granted  by  the 
Literstate  Commerce  Commission,  the  Louisville  &  Nash- 
ville Railroad  Company  has  sub-divided  some  of  the 
Operating  Expense  Accounts  shown  in  the  classification  of 
Operating  Expenses  prescribed  by  the  Commission.  For 
example,  in  the  Maintenance  of  Way  and  Structure 
Block,  certain  expenses  are  shown  as  extraordinary  ex- 
penses, such  as  Ballast  Extraordinary,  Ties  Extraordi- 
nary, etc.  The  expenses  included  in  the  extraordinary 
accounts  are  the  expenses  which  would  be  included  under 
the  Interstate  Commerce  Classification  in  the  ordinary 
accounts  of  the  same  nature,  except  that  the  extraordi- 
nary accounts  kept  by  the  Louisville  &  Nashville  Rail- 
road Company  represent  expenses  arising  from  acts  of 
nature  such  as  storms,  fires,  floods,  etc.,  which  do  not 
arise  in  the  ordinary  operation  of  the  road.  And,  in  the 
general  blocks  of  Traffic  Expenses  and  Transportation 
Expenses  will  be  found  sub-divisions  of  certain  accounts 
as  between  passenger  traffic  and  freight  traffic,  and  as 
between  passenger  trains,  freight  trains  and  mixed 
trains,  which  sub-division  is  in  accordance  with  the  prac- 
tice which  has  been  followed  for  many  years  by  the 
Louisville  &  Nashville  Railroad  Company. 


44 


FoEMULA  Used  in  Classifying  Operating  Expenses  as  to 
Passengee  and  Feeight  for  Louisville  &  Nash- 
ville Lines  in  Alabama. 

Expla^nation  of  Terms  "Passenger''  and  "Revenue  Train 
Mileage"  Percentages. 

Wherever  the  expression  "2%  Passenger"  or  "T^o 
Passenger'^  is  shown,  for  certain  accounts,  as  for  Super- 
intendence and  Ballast,  is  meant  that  this  percentage 
of  the  total  expenses  is  first  directly  assigned  to  the 
Passenger  Traffic,  owing  to  the  necessity  of  more  care- 
ful supervision  and  maintaining  at  a  higher  standard  a 
road  for  the  Passenger  Traffic. 

These  percentages  were  obtained  from  our  Engi- 
neering Department,  and  are  based  upon  engineering 
testimony,  or  opinion,  of  an  engineer  thoroughly  famil- 
iar with  all  conditions  surrounding  the  operation  of  the 
particular  Division  or  Divisions,  under  consideration. 

Wherever  "Revenue  Train  Mileage"  is  shown,  this 
is  intended  to  represent  the  percentage  of  common  ex- 
penses which  is  dependent  upon  the  volume  of  traffic, 
and  therefore,  distributable  upon  the  Revenue  Train 
Mile  basis — Passenger  and  Freight. 

Revenue  Train  Miles — Mixed  were  apportioned  to 
Passenger  and  Freight  on  the  basis  of  number  of  passen- 
ger and  freight-car  miles  run  in  mixed  trains,  and  in- 
cluded in  figures  for  revenue  passenger — ^and  freight- 
train  miles. 

In  the  opinion  of  engineers  thoroughly  informed  up- 
on the  subject,  with  reference  to  Louisville  &  Nashville 


45 

Lines  in  the  State  of  Alabama,  a  passenger-train  mile 
is  at  least  as  destructive,  or  at  least  as  potent  as  an  ex- 
pense producing  factor,  as  is  a  freiglit-train  mile. 

With  reference  to  those  expenses  nnder  the  general 
caption  * ^ Maintenance  of  Way  &  Structures,"  which  are 
independent  of  the  volume  of  traffic,  it  appearing  that 
neither  the  volume  of  freight  traffic  nor  the  volume  of 
passenger  traffic  CAUSED  or  AFFECTED  the  expense, 
but  that  the  expense  is  proportionate  to  the  amount  of 
material  or  road  subjected 'to  the  action  of  the  elements, 
and  it  appearing  further  that  at  least  as  good  a  road, 
and  as  costly  a  road,  would  be  required  for  conducting 
exclusively  a  passenger  traffic  as  would  be  required  for 
conducting  exclusively  a  freight  traffic,  therefore,  a 
logical  distribution  of  such  expenses  is  to  divide  them 
on  the  basis  of  the  EEQUIKEMENT  of  each  kind  of 
traffic,  and  such  a  distribution  is  made  by  charging  one- 
half  to  one  kind  of  traffic  and  one-half  to  the  other  kind 
of  traffic. 

Maintenance  of  Way  and  Structures. 

1.    Superintendence. 

2%  Passenger.  9.8%  Kevenue  Train  Miles — 
Passenger  and  Freight.  Balance  (88.2%)  all 
Maintenance  of  Way  and  Structure  Expenses. 

The  passenger  business  requires  more  careful 
supervision  than  the  freight  business  on  account 
of  the  element  of  risk  and  insurance  which  the 
Railroad  Company  carries  of  a  life  of  a  man  as 
against  a  ton  of  freight.  For  lines  with  passen- 
ger trains  upon  them  we  give  a  greater  amount 


46 

of  supervision  than  for  a  line  which  would  be 
exclusively  freight.  The  greater  amount  of  super- 
vision is  given  whether  there  are  specially  fast 
trains  upon  the  line  or  not.  For  the  Alabama 
Case  the  percentages  shown  are  the  average  for 
the  whole  State  of  Alabama.  If  divided  up  into 
Divisions,  certain  Divisions  ought  to  have  prob- 
ably a  little  higher  percentage  than  other  Divi- 
sions. 

The  percentage  shown  as  representing  the 
volume  of  traffic  in  this,  and  all  subsequent  ac- 
counts, is  made  up  for  the  ordinary  changes  we 
could  expect.  They  are  not  made  up  for  a  change 
of  100%.  They  are  estimates  based  on  necessity 
and  the  reasonably  expected  condition  of  this 
particular  road. 

2.   Ballast. 

7%  Passenger.  69%%  Revenue  Train  Miles 
— Passenger  and  Freight.  Balance  (23%%) 
one-half  Passenger  and  one-half  Freight. 

The  7%  shown  as  being  chargeable  particu- 
larly to  the  passenger  service  grows  out  of  the 
fact  that  the  fast  passenger  service  requires  a 
smoother  track  than  the  freight  service,  for  the 
comfort  of  the  passengers,  and  in  order  to  get 
that  smoother  track  we  are  constantly  tamping 
up  the  joints  and  continually  tamping  up  the 
cross-ties,  which  has  the  effect  of  destroying  a 
portion  of  the  ballast,  and  further,  in  order  to 
obtain  a  smooth  track  it  is  necessary  to  have  a 
greater  depth  of  ballast,  and  a  greater  depth  of 
ballast  requires  a  greater  annual  renewal.  Then 
the  speed  of  a  passenger  train  is  faster;  it  is 
continually  hammering  the  ballast  at  a  greater 
speed  than  the  other  service,  and  continually 
destroying  it,  so  that  there  is  an  increased  de- 
struction of  the  ballast  due  to  the  high  speed  of 
the  passenger  train.  The  7%  represents  an  aver- 
age for  all  lines  in  Alabama. 


47 

As  indicated  above,  7%  of  charges  to  this  ac- 
count are  made  direct  to  passenger  traffic,  and 
69%%  is  divided  on  Eevenue  Train  Miles.  This 
percentage  represents  the  proportion  of  the  ex- 
pense dne  to  the  volume  of  traffic,  or  the  move- 
ment of  trains  over  the  track.  The  remainder,  or 
23%%,  arises  from  decay  and  exposure  to  the 
elements,  which  is  sometimes  termed  ^'weather 
stress. '^  This  is  assigned  one-half  to  passenger 
and  one-half  to  freight. 

3.  Ballast — Extraordinary. 

One-half  Passenger  and  one-half  Freight. 

4.  Ties. 

15%  Eevenue  Train  Miles — Passenger  and 
Freight.  Balance  (85%)  one-half  Passenger  and 
one-half  Freight. 

5.  Ties — Extraordinary. 

One-half  Passenger  and  one-half  Freight. 

6.  Kails. 

3%  Passenger.  87.3%  Eevenue  Train  Miles 
— Passenger  and  Freight.  Balance  (9.7%)  one- 
half  Passenger  and  one-half  Freight. 

The  3%  charged  directly  to  Passenger  for 
**Eails''  grows  out  of  the  necessity  for  super- 
elevating  the  rails  for  high-speed  passenger 
trains  so  as  to  prevent  them  from  mounting  the 
outer  rail.  A  freight  train,  drawn  at  a  slower 
rate  of  speed  will  ride  the  lower  rail  and  will  de- 
stroy the  lower  rail  by  reason  of  the  specific 
super-elevation  of  the  outer  rail  for  the  fast- 
speed  passenger  train,  and  that  is  the  principle 
element  of  extra  cost  chargeable  to  *'EaDs''  and 
is  due  to  the  super-elevation  of  the  outer  rail  for 
passenger  trains.  If  passenger  trains  were  not 
operated,  the  outer  rail  would  only  be  elevated 
so  as  to  put  an  equal  load  on  both  the  outer  rail 
and  inner  rail  and  would  not  unnecessarily  wear 


48 

the  inner  rail.  This  operates  only  on  curves.  In 
arriving  at  the  3%,  consideration  was  taken  of 
the  curved  track;  the  percentage  is  the  percent- 
age of  the  maintenance  of  the  whole  track  and 
not  the  percentage  of  the  maintenance  of  the 
curve,  on  which  the  extra  wear  and  tear  occurs. 

7.  Rails — Extraordinary. 

One-half  Passenger  and" one-half  Freight. 

8.  Other  Track  Material. 

2%  Passenger.  88.2%  Eevenue  Train  Miles 
— Passenger  and  Freight.  Balance  (9.8%)  one- 
half  Passenger  and  one-half  Freight. 

The  percentage  shown  as  chargeable  exclu- 
sively to  passenger  traffic  for  this  account  arises 
from  the  necessity  of  keeping  a  track  safe,  par- 
ticularly about  the  switches,  for  high-speed 
trains,  which  requires  us  to  take  out  switch 
points  and  frogs  and  light  material  before  they 
are  worn  out  for  freight  service,  because  a  small 
defect  in  the  switch  point  would  not  destroy  the 
switch  point  for  freight  service,  but  it  would 
destroy,  or  make  it  dangerous  for  passenger  serv- 
ice, and  the  2%  is  fixed  as  the  average  amount 
of  the  extra  cost  due  to  passenger  service  for 
''Other  Track  Material.'' 

9.  Other  Track  Material — Extraordinary. 

One-half  Passenger  and  one-half  Freight. 
10.    Roadway  and  Track. 

7%  Passenger.  46.5%  Revenue  Train  Miles 
— Passenger  and  Freight.  Balance  (46.5%)  one- 
half  Passenger  and  one-half  Freight. 

The  percentage  shown  for  ''Roadway  and 
Track''  is  simply  the  labor.  The  same  argument 
applies  to  this  account  which  applies  to  "Bal- 
last, ' '  and  is  based  principally  upon  the  necessity 
of  keeping  the  track  smoother  for  the  comfort  of 


49 

passengers  and  for  the  safety  of  passenger  trains 
at  high  speed  than  would  be  necessary  if  all  trains 
were  freight  trains  at  slower  rate  of  speed. 

11.  Eoadway  and  Track — Extraordinary. 

One-half  Passenger  and  one-half  Freight. 

12.  Roadway  and  Track — Assessments  for  Public  Im- 

provements. 

One-half  Passenger  and  one-half  Freight. 

13.  Cleaning  Eight  of  Way. 

12%  Passenger.  Balance  (88%)  one-half 
Passenger  and  one-half  Freight. 

The  cleaning  of  right  of  way  is  done  partly 
for  the  protection  of  the  right  of  way  and  partly 
for  the  looks.  Now,  that  item  which  goes  into  the 
looks,  which  includes  the  cleaning  up  around  the 
stations,  in  cutting  of  the  weeds  more  often  than 
we  otherwise  would,  is  attributed  solely  to  the 
desire  to  please  the  passengers  passing  over  the 
line,  and  is  the  difference  between  what  the  clean- 
ing of  right  of  way  would  be  if  only  freight  trains 
were  operated,  and  what  it  is,  operating  both 
freight  and  passenger. 

14.  Removal  of  Snow,  Sand  and  Ice. 

One-half  Passenger  and  one-half  Freight. 

15.  Tunnels. 

One-half  Passenger  and  one-half  Freight. 

16.  Tunnels — Extraordinary. 

One-half  Passenger  and  one -half  Freight. 

17.  Bridges,  Trestles  and  Culverts. 

15%  Revenue  Train  Miles — Passenger  and 
Freight.  Balance  (85%)  one-half  Passenger  and 
one-half  Freight. 

18.  Bridges,  Trestles  and  Culverts — Extraordinary. 

One-half  Passenger  and  one-half  Freight. 


50 

19.  Over  and  Under  Grade  Crossings. 

One-half  Passenger  and  one-half  Freight. 

20.  Over  and  Under  Grade  Crossings — Extraordinary. 

One-half  Passenger  and  one-half  Freight. 

21.  Grade  Crossings,  Cattle  Guards,  and  Signs. 

One-half  Passenger  and  one-half  Freight. 

22.  Grade  Crossings,  Cattle  Guards,  and  Signs — Ex- 

traordinary. 

One-half  Passenger  and  one-half  Freight. 

23.  Eight  of  Way  Fences. 

One-half  Passenger  and  one-half  Freight. 

24.  Eight  of  Way  Fences — Extraordinary. 

One-half  Passenger  and  one-half  Freight. 

25.  Snow  and  Sand  Fences  and  Snow  Sheds. 

One-half  Passenger  and  one-half  Freight. 

26.  Signals  and  Interlocking  Plants. 

25%  Passenger.  Balance  (75%)  one-half 
Passenger  and  one-half  Freight. 

Signals  and  Interlocking  plants  are  installed 
principally  for  the  benefit  of  fast  passenger 
trains,  although  freight  trains  get  the  benefit  of 
them  in  passing  over  the  line.  The  25%  of  the 
total  maintenance  is  estimated  by  the  engineers 
to  be  properly  chargeable  to  the  passenger  trains. 
It  is  a  question  of  speed  and  safety.  A  collision 
on  a  crossing  of  a  passenger  train  is  a  serious 
matter,  whereas  with  freight  trains  it  is  destruc- 
tion of  a  certain  amount  of  property. 

27.  Signals  and  Interlocking  Plants — Extraordinary. 

One-half  Passenger  and  one-half  Freight. 

28.  Telegraph  and  Telephone  Lines. 

One-half  Passenger  and  one-half  Freight. 


51 

29.  Telegraph  and  Telephone  Lines — Extraordinary. 

One-half  Passenger  and  one-half  Freight. 

30.  Electric  Power  Transmission. 

No  Charges. 

31.  Water  Stations. 

5%  Number  of  tons  of  coal  consumed  in  Pas- 
senger and  Freight  Train  Service.  Balance 
(95%)  one-half  Passenger  and  one-half  Freight. 

The  number  of  tons  consumed  in  Mixed  Serv- 
ice is  included  in  Passenger  and  Freight  on  the 
basis  of  passenger  and  freight-car  miles  run  in 
Mixed  Trains.  The  number  of  tons  consumed  in 
Switching  Service  is  included  in  Passenger  and 
Freight  on  the  basis  of  the  relative  cost  of  pas- 
senger and  freight  switching. 

32.  Fuel  Stations. 

Same  as  Account  No.  31,  **  Water  Stations. '* 

33.  Shops,  Engine  Houses,  etc. 

5%  Kevenue  Train  Miles — Passenger  and 
Freight.  Balance  (95%)  one-half  Passenger  and 
one-half  Freight. 

34.  Station,  Office,  and  Other  Buildings. 

7%  Passenger.  Balance  (93%)  one-half  Pas- 
senger and  one-half  Freight. 

The  renewal  of  buildings  is  due  to  the  desire 
to  please  passengers  by  having  a  pleasant,  or 
more  attractive  appearance.  We  paint  the  stations 
more  often  because  we  have  passengers  going  to 
them  and  because  we  have  passengers  passing 
over  the  line  of  the  railroad  and  desire  to  please 
them. 

35.  Buildings,  Fixtures  and  Grounds — Extraordinary. 

One-half  Passenger  and  one-half  Freight. 


52 

36.  Buildings,    Fixtures    and    Grounds — Assessments 

for  Public  Improvements. 

One-half  Passenger  and  one-half  Freight. 

37.  Docks  and  Wharves.  I    nn.    •  i  . 

V  Freight. 

38.  Docks  and  Wharves — Extraordinary.     ) 

39.  Eoadway  Tools  and  Supplies. 

7%  Passenger.  46.5%  Eevenue  Train  Miles — 
Passenger  and  Freight.  Balance  (46.5%)  one- 
half  Passenger  and  one-half  Freight. 

The  percentage  chargeable  directly  to  the 
Passenger  Traffic  under  this  account  is  depend- 
ent on  the  item  for  ^^ Eoadway  and  Track"  since 
it  is  the  tools  for  which  expenditures  for  ''Eoad- 
way and  Track"  are  made. 

40.  Injuries  to  Persons. 

25%  Eevenue  Train  Miles — Passenger  and 
Freight.  Balance  (75%)  one-half  Passenger 
and  one-half  Freight. 

41.  Stationery  and  Printing  1  One-half  Passenger  and 

42.  Other  Expenses  J      one-half  Freight. 
42-a.    Other  Expenses — Depreciation. 

All  other  ''Maintenance  of  Way  &  Struc- 
tures" Expenses. 

43.  Maintaining  Joint  Tracks,  Yards,  and  Other  Facil- 

ities— Dr. 

Allocated  to  Passenger  and  Freight  where 
possible.  Common  or  indeterminable  items  were 
classified  on  basis  of  Eevenue  Train  Miles — Pas- 
senger and  Freight. 

44.  Maintaining  Joint  Tracks,  Yards,  and  Other  Facili- 

ties— Cr. 

Same  as  Account  No.  43,  "Maintaining  Joint 
Tracks,  Yards,  and  Other  Facilities — Dr." 


53 


Maintenance  of  Equipment. 

45.  Superintendence. 

All  other  ^'Maintenance  of  Equipment''  Ex- 
penses. 

46.  Steam  Locomotives — Repairs. 

Eepairs  to  Passenger  and  Freight  Locomo- 
tives were  classified  as  Passenger  and  Freight, 
respectively.  Eepairs  to  Switch  Locomotives 
were  classified  on  the  basis  of  the  relative  cost 
of  Passenger  and  Freight  Switching.  Repairs 
to  Locomotives  in  Mixed  Service  were  classified 
on  the  basis  of  the  number  of  Passenger  and 
Freight-car  Miles  run  in  Mixed  Trains.  In  arriv- 
ing at  Revenue  Locomotive  Miles — Passenger  and 
Freight,  the  miles  of  locomotives  in  Mixed  Service 
^ere  apportioned  to  Passenger  and  Freight  on 
the  basis  of  the  number  of  Passenger  and  Freight- 
car  miles  run  in  Mixed  Trains,  and  included  in 
figures  for  Passenger  and  Freight.  Switching 
Miles  were  left  out. 

47.  Steam  Locomotives — Renewals. 

Revenue  Locomotive  Miles,  as  explained 
under  Account  No.  46,  **  Steam  Locomotives — 
Repairs. ' ' 

48.  Steam  Locomotives — Depreciation. 

The  value  of  Passenger,  Freight,  Switch  and 
Work  Locomotives  as  of  July  1st  (each  year), 
^as  ascertained  and  the  percentage  that  the  value 
of  each  class  bears  to  the  total  value  was  calcu- 
lated. The  percentage  accruing  to  Switching 
Locomotives  was  classified  as  Passenger  and 
Freight  on  the  basis  of  the  relative  cost  of  Pas- 
senger and  Freight  Switching.  The  percentage 
accruing  to  Work  Locomotives  was  classified  as 
Passenger  and  Freight  on  the  basis  of  total 
charges  to  Passenger  and  Freight  on  all  ''Main- 


54 


49. 
50. 
51. 
52. 
53. 
54. 
55. 
56. 
57. 


tenance  of  Way  &  Structures''  Accounts.  By  ad- 
ding the  percentage  accruing  to  Passenger  Loco- 
motives and  the  Passenger  proportions  of  the 
percentages  accruing  to  Switch  and  Work  Loco- 
motives, respectively,  the  total  Passenger  was  ar- 
rived at,  and  by  adding  the  percentage  accruing 
to  Freight  Locomotives  and  the  Freight  propor- 
tions of  the  percentages  accruing  to  Switch  and 
Work  Locomotives,  respectively,  the  total  Freight 
percentage  was  obtained.  The  total  charges  to 
Passenger  and  Freight  were  apportioned  on  the 
percentages  for  Passenger  and  Freight  thus  ob- 
tained. 


Electric  Locomotives- 
Electric  Locomotives- 
Electric  Locomotives- 
Passenger-train  Cars- 
Passenger-train  Cars- 


-Repairs 

-Renewals 

-Depreciation 

-Repairs 

Renewals 


Passenger-train  Cars — Depreciation 
Freight-train  Cars— Repairs 
Freight-train  Cars— Renewals 
Freight-train  Cars — Depreciation 

58.  Electric  Equipment  of  Cars- Repairs 

59.  Electric  Equipment  of  Cars — Renewals 

60.  Electric  Equipment  of  Cars- 

Depreciation 


No 
Charges. 

Direct  to 
Passen- 
ger. 

Direct  to 
Freight. 


No 
Charges. 


61.  Floating  Equipment— Repairs 

62.  Floating  Equipment— Renewals 

63.  Floating  Equipment— Deprecia- 

tion 


15%  Revenue 
Train  Miles- 
Passenger  and 
Freight.  Bal- 
ance  (85%) 
one-half  Pas- 
senger and 
one -half 
Freight. 


55 


64. 
65. 
66, 

67. 

68, 

69. 
70. 
71. 


Work  Equipment— Repairs 
Work  Equipment— Renewals 
Work  Equipment— Depreciation 


Total  charges 
for  Passenger 
and  Freight 
for  all  */ Main- 
ten  a  n  c  e  of 
Way  and 
Structure  '  ' 
Expenses. 

Shop  Machinery  and  Tools. 

Allocated  costs  of  repairs  for  all  classes  of 
equipment  (including  '^Work"). 

Power  Plant  Equipment. 

No  Charges. 

Injuries  to  Persons 

Stationery  and  Printing 

Other  Expenses 


Allocated  costs  of  re- 
pairs for  all  classes  of 
equipment  (including 
^^Work'O. 


72.  Maintaining  Joint  Equipment  at  Ter- 

minals—Dr. 

73.  Maintaining  Joint  Equipment  at  Ter- 

minals—Cr. 


Allocated  to 
Passenger 

and 
Freight. 


Traffic  Expenses. 

74.  Superintendence— Passenger. 

Direct  to  Passenger. 

75.  Superintendence — Freight. 

Direct  to  Freight. 

76.  Outside  Agencies — Passenger. 

Direct  to  Passenger. 

77.  Outside  Agencies — Freight. 

Direct  to  Freight. 

78.  Advertising — Passenger. 

Direct  to  Passenger. 


M 

79.  Advertising — Freight. 

Direct  to  Freight. 

80.  Traffic  Associations — Passenger. 

Direct  to  Passenger. 

81.  Traffic  Associations — Freight. 

Direct  to  Freight. 

82.  Fast  Freight  Lines. 

Direct  to  Freight. 

83.  Industrial  and  Immigration  Bureaus. 

Gross  Earnings— Passenger  and  Freight. 

84.  Stationery  and  Printing — Passenger. 

Direct  to  Passenger. 

85.  Stationery  and  Printing — Freight. 

Direct  to  Freight. 

86.  Other  Expenses. 

Oross  Earnings — Passenger  and  Freight. 

Transportation  Expenses. 

87.  Superintendence. 

All  other  Passenger  and  Freight  Charges  to 
Transportation  Accounts. 

88.  Dispatching  Trains. 

Revenue  Train  Miles — Passenger  and  Freight. 

89.  Station  Employes — Passenger. 

Direct  to  Passenger. 

90.  Station  Employes — Freight. 

Direct  to  Freight. 

91.  Weighing  and  Car  Service  Associations  1   Direct  to 

92.  Coal  and  Ore  Docks  f  Freight. 


57 


93. 


94. 
95. 

96. 

97. 

98. 

99. 
100. 
101. 
102. 

103. 

104. 


105. 


106. 


Station  Supplies  and  Expenses. 

Apportioned  to  Passenger  and  Freight  in  the 
ratio  of  charges  to  Accounts  No.  71,  *^  Station 
Supplies— Passenger/'  and  No.  72,  ^^ Station  Sup- 
plies—Freight,'' for  the  fiscal  year  1906-1907. 
(Last  year  for  which  separation  of  Passenger  and 
Freight  was  made.) 

Yardmasters  and  their  Ckrks 

Yard  Conductors  and  Brake- 
men 


Relative  cost  o  f 
Passenger  and 
Freight  Switch- 
ing. 

Based  on  percen- 
tages of  Switch- 
ing Expenses  as- 
signed to  Pas- 
senger  and 
Freight  Service 
on  hasis  of  ac- 
tual time  e  n  - 
gaged  in  each 
class  of  service. 


Yard  Switch  and  Signal  Ten- 
ders 

Yard  Supplies  and  Expenses 

Yard  Enginemen 

Enginehouse  Expenses— Yard 

Fuel  for  Yard  Locomotives 

Water  for  Yard  Locomotives 

Lubricants  for  Yard  Locomo- 
tives 

Other  Supplies  for  Yard  Lo- 
comotives 

Operating  Joint  Yards  and  Terminals— Dr. 

Allocated  to  Passenger  and  Freight  where 
possible.  At  yards  at  which  both  Passenger  and 
Freight  Switching  was  done,  the  expenses  were 
classified  as  Passenger  and  Freight  on  the  basis 
of  relative  cost  of  Passenger  and  Freight  Switch- 
ing at  that  yard  when  this  was  known;  otherwise, 
on  basis  of  Revenue  Train  Miles. 

Operating  Joint  Yards  and  Terminals— Cr. 

Same  as  Account  No.  104,  '^Operating  Joint 
Yards  and  Terminals— Dr. 

Motormen. 

No  Charges. 


58 

107.  Road  Enginemen— Passenger. 

Direct  to  Passenger. 

108.  Road  Enginemen— Freiglit. 

Direct  to  Freiglit. 

109.  Road  Enginemen— Mixed. 

Passenger  and  Freight-car  Miles  run  in  Mixed 
Trains. 

110.  Engineliouse  Expenses— Road. 

Expenses  were  classified  as  Passenger,  Freight 
and  Mixed  on  the  basis  of  engines  of  those  classes 
handled  at  the  roundhouse.  The  amounts  accru- 
ing to  Passenger  and  Freight  Locomotives  were 
classified  accordingly.  The  amounts  accruing  to 
Locomotives  in  Mixed  Service  were  classified  as 
Passenger  and  Freight  on  the  basis  of  the  number 
of  Passenger  and  Freight-car  Miles  run  in  Mixed 
Trains. 

111.  Fuel  for  Road  Locomotives— Passenger. 

Direct  to  Passenger. 

112.  Fuel  for  Road  Locomotives— Freight. 

Direct  to  Freight. 

113.  Fuel  for  Road  Locomotives— Mixed. 

Passenger  and  Freight-car  Miles  run  in  Mixed 
Trains. 

114.  Water  for  Road  Locomotives. 

Number  of  tons  of  coal  consumed  in  Passenger 
and  Freight  Train  Service.  The  number  of  tons 
consumed  in  Mixed  Service  is  included  in  Pas- 
senger and  Freight  on  the  basis  of  Passenger  and 
Freight-car  Miles  run  in  Mixed  Trains.  The  num- 
ber of  tons  consumed  in  Switching  Service  is  in- 
cluded in  Passenger  and  Freight  on  the  basis  of 
the  relative  cost  of  Passenger  and  Freight  Switch- 
ing. 


59 

115.  Lubricants  for  Road  Locomotives— Passenger. 

Direct  to  Passenger. 

116.  Lubricants  for  Road  Locomotives— Freight. 

Direct  to  Freight. 

117.  Lubricants  for  Road  Locomotives— Mixed. 

Passenger  and  Freight-car  Miles  run  in  Mixed 
Trains. 

118.  Other  Supplies  for  Road  Locomotives— Passenger. 

Direct  to  Passenger. 

119.  Other  Supplies  for  Road  Locomotives— Freight. 

Direct  to  Freight. 

120.  Other  Supplies  for  Road  Locomotives— Mixed. 

Passenger  and  Freight-car  Miles  run  in  Mixed 
Trains. 

121.  Operating  Power  Plants  1  ^^    ^, 

^No  Charges. 

122.  Purchased  Power  J 

123.  Road  Trainmen— Passenger. 

Direct  to  Passenger. 

124.  Road  Trainmen— Freight. 

Direct  to  Freight. 

125.  Road  Trainmen— Mixed. 

Passenger  and  Freight-car  Miles  run  in  Mixed 
Trains. 

126.  Train  Supplies  and  Expenses— Passenger. 

Direct  to  Passenger. 

127.  Train  Supplies  and  Expenses— Freight. 

Direct  to  Freight. 

128.  Train  Supplies  and  Expenses— Mixed. 

Passenger  and  Freight-car  Miles  run  in  Mixed 
Trains. 


60 


129. 

130. 

131. 
132. 


133. 


134. 
135. 

136. 
137. 
138. 

139. 

140. 

141. 


Interlockers,  Block  and  Other 
Signals— Operation. 

Crossing  Flagmen  and  Gate 
men. 

Drawbridge  Operation. 

Clearing  Wrecks. 


Revenue  Train 
Miles— Passenger 
and  Freight  ;Eev- 
enue  Train  Miles 
—Mixed,  were  ap- 
portioned to  Pas- 
senger  and 
Freight  on  basis 
of  number  of  Pas- 
senger  and 
Ffeight-car  Miles 
run  in  Mixed 
Trains,  and  in- 
cluded in  figures 
for  Rev.  Passgr. 
and  Freight  Train 
Miles. 

Telegraph  and  Telephone— Operation. 

Revenue  Train  Miles— Passenger  and  Freight. 
Revenue  Train  Miles — Mixed,  were  apportioned 
to  Passenger  and  Freight  on  basis  of  number  of 
Passenger  and  Freight-car  Miles  run  in  Mixed 
Trains,  and  included  in  figures  for  Revenue  Pas- 
senger and  Freight  Train  Miles. 

Operating  Floating  Equipment.  "] 

>No  Charges. 


^  Revenue  Train  Miles 
— P  assenger  and 
Freight. 


Express  Service. 

Stationery  and  Printing. 
Other  Expenses.  J 

Loss  and  Damage— Freight. 

Direct  to  Freight. 
Loss  and  Damage— Baggage. 

Direct  to  Passenger. 
Damage  to  Property. 

Revenue  Train  Miles— Passenger  and  Freight. 
Damage  to  Stock  on  Right  of  Way— Passenger. 

Direct  to  Passenger. 


61 


142.  Damage  to  Stock  on  Eight  of  Way— Freight. 

Direct  to  Freight. 

143.  Injuries  to  Persons  (not  Employes) —Passenger, 

Direct  to  Passenger. 

144.  Injuries  to  Persons  (not  Employes)— Freight. 

Direct  to  Freight. 

145.  Injuries  to  Employes— Passenger. 

Direct  to  Passenger. 

146.  Injuries  to  Employes— Freight. 

Direct  to  Freight. 

147.  Operating  Joint  Tracks  and  Facil- 

ities—Dr. 

148.  Operating  Joint  Tracks  and  Facil- 

ities—Or. 


Eevenue 
Train    Miles 
—Passenger 
and  Freight. 


General  Expenses. 

149.  Salaries  and  Expenses  of  General  Of- 

ficers. 

150.  Salaries  and  Expenses  of  Clerks  and 

Attendants. 

151.  General  Office  Supplies  and  Expenses. 

152.  Law  Expenses. 

153.  Insurance. 

154.  Eelief  Department  Expenses. 

155.  Pensions. 

156.  Stationery  and  Printing. 

157.  Other  Expenses. 

158.  General  Administration  Joint  Tracks, 

Yards  and  Terminals — Dr. 

159.  General  Administration  Joint  Tracks, 

Yards  and  Terminals — Cr. 


Passenger 

and 

Freight 

Charges 

to 

all 

Other 

Accounts 


62 

The  percentages  shown  for  the  various  accounts  in 
the  ^  *  Maintenance  of  Way  and  Structures  Block/'  rep- 
resenting the  expenses  which  should  be  charged  direct 
to  the  passenger  service,  and  the  percentages  due  to  the 
volume  of  traffic,  are  percentages  worked  out  by  Mr. 
J.  E.  Willoughby,  Engineer  of  Construction  of  the  Louis- 
ville &  Nashville  Railroad  Company,  upon  conditions 
surrounding  the  operation  of  Louisville  &  Nashville 
Lines  in  Alabama,  which  justified  such  percentages. 

For  Louisville  &  Nashville  Lines  in  Alabama,  on  the 
main  track  of  the  Mobile  &  Montgomery  Division,  the 
amount  of  ballast  that  would  be  destroyed  in  keeping 
the  tracks  smooth  is  far  greater  than  the  amount  of 
ballast  that  would  be  destroyed  in  keeping  the  track  in 
surface  for  freight  traffic,  for  instance,  on  some  of  the 
branches  of  the  Birmingham  Mineral  Division. 

As  to  Engineering  and  Supervision :  The  percentage 
is  a  general  percentage  which  would  apply  practically 
to  all  of  our  Lines.  The  repairs  to  roadbed  of  our  tracks 
in  Alabama  would  vary  for  the  South  &  North  Alabama 
Railroad,  or  a  line  curved  like  that,  from  repairs  to 
roadbed  and  track  on  the  Alabama  and  Florida  Rail- 
road. There  would  be  a  greater  amount  of  repairs  on 
the  main  line  of  the  Louisville  &  Nashville  Railroad  road- 
bed and  track  as  compared  with  the  branch  lines  of 
this  Railroad.  For  example:  Mr.  Willoughby,  on  tak- 
ing the  figures  for  roadbed  and  track,  figured  that  the 
extra  cost  of  keeping  the  track  smooth  would  amount 
in  labor  to  .2  of  one  man  per  mile.  The  apportionment 
of  labor  for  a  track  is  .2  of  a  man  per  mile.    He  worked 


63 

that  out  as  to  liow  mucli  it  would  amount  to  for  a  rail- 
road division  for  years,  and  figured  the  percentage  in 
that  way.  And  the  question  whether  this  .2  of  a  man,  or 
%th  of  a  man,  per  mile,  is  sufficient,  is  a  question  pe- 
culiarly attributable  to  the  Lines  in  Alabama.  On  the 
Louisville,  Cincinnati  &  Lexington  Division,  for  example 
the  .2  would  not  be  enough.  There  we  have  an  un- 
stable roadway,  whereas  in  Alabama  we  have  usu- 
ally a  stable  roadway,  and  the  .2  would  not  be  suffi- 
cient in  Eastern  Kentucky,  on  Lines  like  the  Cumber- 
land Valley  Division,  where  we  have  a  great  number  of 
slides,  and  where  the  drainage  is  a  more  serious  ques- 
tion than  in  the  sandy  soils  in  Alabama,  and  the  charge 
for  percentage  for  the  looser  soils  for  maintaining  a 
smooth  track  would  be  less  than  for  a  sticky  soil  like  we 
have  on  the  Louisville,  Cincinnati  &  Lexington  Division. 

The  conditions  in  Alabama  are  not  such  as  would 
make  necessary  a  larger  percentage  to  Passenger  Traf- 
fic than  in  other  States.  The  Lines  in  Alabama  on  which 
we  have  a  passenger  traffic,  as  compared  with  other  lines 
of  the  Louisville  &  Nashville  System,  are  possibly  an 
average,  or  a  little  better  than  an  average.  (This  refers 
to  the  roadway.) 

Cross-ties  rot  out  quicker  in  Alabama  on  account  of 
heat  and  moisture,  and  the  character  of  ties.  Pine  ties, 
for  instance,  rot  faster  than  oak  ties.  Other  wooden 
structures  decay  faster  in  Alabama  than  they  do  in  Ken- 
tucky. 

The  2%  of  Supervision  peculiarly  incurred  by 
and   chargeable    to    the    Passenger    Traffic,    is    due   to 


64 

the  extraordinary  care  given.  For  example:  A  pas- 
senger train  is  late  ten  (10)  minutes — a  report  is 
made  of  it,  but  if  it  is  a  freight  train  no  report  is  made. 
That  requires  a  Clerk's  time,  and  requires  additional 
help  to  keep  track  of  the  passenger  traffic  because  it  is 
slightly  late.  Because  there  is  a  fast  passenger  train 
on  the  road  the  Supervisor  and  Section  Foreman  will 
send  out  watchmen  at  night  to  look  over  the  track,  and 
go  over  it  themselves  and  give  additional  care  to  it,  and 
because  they  have  a  fast  passenger  train,  everybody  will 
be  devoting  more  time  to  supervision.  The  actual  track 
work  has  to  be  done  in  such  a  method  as  not  to  interfere 
with  or  delay  the  passenger  trains,  more  than  would  be 
if  it  were  merely  a  freight  train.  There  are  no  items  of 
Superintendence,  no  extra  care  or  superintendence  given 
to  freight  movements.  There  is  a  general  care  for  all 
train  movements,  and  then  there  is  an  additional  care 
given  for  passenger  movements. 

It  may  not  be  possible  to  put  your  finger  down  and 
say  just  when  this  additional  expense  begins  and  when 
it  ends.  It  will  accumulate  for  a  System  or  Division 
and  will  finally  get  to  be  an  additional  force.  You  run 
a  passenger  train  over  a  line  that  has  not  heretofore  had 
a  passenger  train  on  it,  and  you  will  have  to  increase 
your  force.  As  the  passenger  traffic  goes  on,  additional 
labor  is  spent,  and  additional  expense  incurred. 

The  percentages  shown  as  chargeable  to  Passenger 
are  exclusive  of  any  benefits  the  Freight  Traffic  would 
derive.  They  are  percentages  that  are  exclusively 
chargeable  to  the  Passenger  Traffic.     In  other  words, 


65 

if  there  were  no  passenger  trains  operated  at  all 
on  the  Lines  in  Alabama,  there  would  be  a  saving 
of  7%  in  ballast.  When  ballast  is  put  on  for  a  freight 
line,  eight  (8)  inches  is  used;  when  put  on  for  a  passen- 
ger line,  we  use  twelve  (12)  inches. 

The  7%,  representing  the  saving  on  ballast  if  no 
passenger  trains  were  operated,  is  arrived  at 

1st — hj  the  maintenance  of  50%  of  present  amount 

of  slag,  and 
2d — the    continual    tamping    to    keep    the    tracks 
smooth,  which 
destroys  the  ballast.    The  7%  is  the  average  for  Louis- 
ville &  Nashville  Lines  in  Alabama. 

Taking  Interlocking  Plants :  We  would  not  put  down 
an  interlocking  plant  at  all  for  freight  service,  therefore 
if  we  take  the  passenger  service  off  we  would  save  the 
entire  cost  of  interlocking  plants. 


66 


Formula  Used  in  Classifying  Operating  Expenses  of 
Divisions  Wholly  or  Partly  in  the  State  of 
Alabama,  as  ' '  Haulage  '  *  and  '  *  Non- 
Haulage.  ^ ' 

Maintenance  of  Way  and  Structures. 

1.  Superintendeiice. 

General — Divided  in  proportion  to  all  other 
** Maintenance  of  Way  and  Structures''  Accounts. 

2.  Ballast. 

3.  Ballast--Extraordinary. 

4.  Ties. 

5.  Ties — Extraordinary. 

6.  Bails. 

7.  Bails — Extraordinary. 

8.  Other  Track  Material. 

9.  Other  Track  Material — Extraordinary. 

10.  Boadway  and  Track. 

11.  Boadway  and  Track — Extraordinary. 

12.  Boadway  and  Track — Assessments  for  Public  Im- 

provements. 

13.  Cleaning  Bight  of  Way. 

Superintendent's  report  as  to  what  percentage  of  each  ac- 
count on  his  particular  division  is  Haulage  and  what  percentage 
Non-Haulage.  For  example:  Expenditures  for  Ballast,  Ties, 
Rails,  Other  Track  Material,  Roadway  and  Tracks,  etc.,  in  con- 
nection with  maintenance  of  a  team  track,  warehouse  track 
or  any  delivery  or  receiving  track,  including  interchange  tracks 
with  connecting  lines  (which  tracks  are  used  by  switching  en- 
gine and  not  by  trains)  and  yard  tracks  or  terminal  tracks, 
except  when  they  are  used  for  the  passage  of  trains  with  road 
engine-power,  considered  as  terminal  expenses  or  Non-Haulage. 
The  distinction  drawn  was  one  between  tracks  and  facilities 
for  trains  between  stations,  or  affected  by  distance,  and  tracks 
and  facilities  used  for  handling  cars  at  stations,  or  not  affected 
by  distance.  In  the  former  case  the  cost  of  maintenance  was 
charged  to  Haulage  and  in  the  latter  to  Non-Haulage. 


67 

14.  Removal  of  Snow,  Sand  and  Ice. 

15.  Tunnels. 

16.  Tunnels — Extraordinary. 

17.  Bridges,  Trestles,  and  Culverts. 

18.  Bridges,  Trestles,  and  Culverts — Extraordinary. 

19.  Over  and  Under  Grade  Crossings. 

20.  Over   and   Under   Grade   Crossings — Extraordi- 

nary. 

21.  Grade  Crossings,  Cattle  Guards,  and  Signs. 

22.  Grade  Crossings,  Cattle  Guards,  and  Signs — Ex- 

traordinary. 

23.  Right  of  Way  Fences. 

24.  Right  of  Way  Fences — ^Extraordinary. 

25.  Snow  and  Sand  Fences  and  Snow  Sheds. 

26.  Signals  and  Interlocking  Plants. 

27.  Signals  and  Interlocking  Plants — Extraordinary. 

28.  Telegraph  &  Telephone  Lines. 

29.  Telegraph  &  Telephone  Lines — Extraordinary. 

Superintendent's  report  as  to  what  percentage  of  each  ac- 
count on  his  particular  division  is  Haulage  and  what  percentage 
Non-Haulage.  For  example:  Expenditures  for  Ballast,  Ties, 
Rails,  Other  Track  Material,  Roadway  and  Tracks,  etc.,  in  con- 
nection with  maintenance  of  a  team  track,  warehouse  track 
or  any  delivery  or  receiving  track,  including  interchange  tracks 
with  connecting  lines  (which  tracks  are  used  by  switching  en- 
gine and  not  by  trains)  and  yard  tracks  or  terminal  tracks, 
except  when  they  are  used  for  the  passage  of  trains  with  road 
engine-power,  considered  as  terminal  expenses  or  Non-Haulage. 
The  distinction  drawn  was  one  between  tracks  and  facilities 
for  trains  between  stations,  or  affected  by  distance,  and  tracks 
and  facilities  used  for  handling  cars  at  stations,  or  not  affected 
by  distance.  In  the  former  case  the  cost  of  maintenance  was 
charged  to  Haulage  and  in  the  latter  to  Non-Haulage. 

30.  Electric  Power  Transmission :    No  Charges. 

31.  Water  Stations.  1 

32.  Fuel  Stations,      j       ^^  ^^^' 

33.  Shops,  Engine  Houses,  Etc.   *  il       Non- 
34.     Station,  Office,  and  Other  Buildings.  J  Haulage. 


ee 


35. 

Buildings,  Fixtures,  and  Grounds  ' 
—Extraordinary. 

36. 

Buildings,  Fixtures,  and  Grounds 
—Assessments   for   Public    Im- 

provements. 

"  Non-Haulage. 

37. 

Docks  and  Wharves. 

38. 

Docks    and    Wharves — Extraor- 
dinary. 

39. 

Eoadway  Tools  and  Supplies. 

40. 

Injuries  to  Persons. 

General  —  Divided 

41. 

Stationery  and  Printing. 

in  proportion  to 
all  other  *^  Main- 

42. 

Other  Expenses. 

tenance  of  Way 

42-[ 

I.    Other  Expenses— Deprecia- 

and Structures'' 

tion. 

Accounts. 

43. 

Maintaining  Joint  Tracks,  Yards, 

Main  Tracks— 

and  Other  Facilities— Dr. 

Haulage  ; 

44. 

Maintaining  Joint  Tracks,  Yards,   [ 

Other  Tracks, 
Yards,  etc.— 

"VT                1                 1 

and  Other  Facilities— Cr. 

J 

Non-haulage. 

Maintenance  of  Equipment. 


45.  Superintendence. 

General— Divided  in  proportion  to  all  *^  Main- 
tenance of  Equipment''  Accounts. 

46.  Steam  Locomotives — Eepairs. 

Switching— Non-haulage ;  Others— Haulage. 

47.  Steam  Locomotives— Renewals. 

Divided  in  ratio  to  value  as  of  July  1st  (each 
year)  of  Road  Locomotives  and  Switch  Locomo- 
tives to  total  value  of  all  Locomotives;  Switch 
Locomotives  being  Non-haulage. 


69 


48.  Steam  Locomotives— Depreciation. 

Divided  in  ratio  to  value  as  of  July  1st  (each 
year)  of  Eoad  Locomotives  and  Switch  Locomo- 
tives to  total  value  of  all  Locomotives;  Switch  Lo- 
comotives being  Non-^haulage. 

49.  Electric  Locomotives— Eepairs. 

50.  Electric  Locomotives— Eenewals.  ^  No  Charges. 

51.  Electric  Locomotives— Depreciation. 

52.  Passenger-Train  Cars— Kepairs. 

53.  Passenger-Train  Cars— Eenewals.       ^Haulage. 

54.  Passenger-Train  Cars— Depreciation.  ^ 

55.  Freight-Train  Cars — Eepairs. 

56.  Freight-Train  Cars — Eenewals. 

57.  Freight-Train  Cars — Depreciation. 

Charges  to  Accounts  55,  56  and  57  were  classified  as  Haul- 
age and  Non-Haulage  in  the  proportion  that  the  time  shipments 
were  in  transit  bears  to  the  time  freight  cars  were  detained  at 
stations.  The  average  detention  was  obtained  from  statement 
furnished  by  the  Alabama  Demurrage  &  Storage  Bureau.  In 
arriving  at  the  average  time  a  shipment  was  in  transit,  the 
average  haul  (in  miles)  per  ton  of  freight  on  divisions  wholly 
in  Alabama,  and  on  Alabama  portions  of  divisions  only  partly 
in  Alabama,  was  obtained  from  the  Auditor  of  Eeceipts.  The 
average  haul,  in  miles,  per  loaded  car  per  day  was  obtained 
from  a  statement  furnished  by  the  Car  Accountant,  showing 
this  information  for  certain  divisions  and  combinations  of 
divisions,  and  for  the  months  of  October,  1910,  and  June,  1911. 
The  averages  for  the  two  months  given  were  added  and  divi- 
ded by  two  and  the  result  used  as  the  average  haul,  in  miles, 
per  loaded  car  per  day.  By  dividing  the  average  haul  (in 
miles)  per  ton  of  freight  by  the  average  haul  (in  miles)  per 
loaded  car  per  day,  the  average  number  of  days  a  shipment 
was  in  transit  was  obtained. 

58.  Electric    Equipment    of    Cars— Ee- 

pairs. 

59.  Eleetric    Equipment    of    Cars— Ee- 

newals. 

60.  Electric  Equipment  of  Cars— Depre- 

ciation. 


^No  Charges. 


70 


61. 
62. 
63. 


64. 
65. 
66, 
67. 
68. 

69. 
70. 
71. 
72. 

73. 


Floating  Equipment— Repairs. 

Floating  Equipment—Renewals. 

Floating  Equipment— Deprecia- 
tion. 


Same  as  Account 
No.  17/ ^Bridges, 
Trestles  and  Cul- 
verts,'' (Float- 
ing Equipment 
of  this  Company 
is  used  exclu- 
sively in  repairs 
of  trestles.) 


Work  Equipment— Repairs. 

Work  Equipment— Renewals. 

Work  Equipment— Depreciation. 

Shop  Machinery  and  Tools. 

Power  Plant  Equipment :  No  Charges. 


Haulage. 


Injuries  to  Persons. 
Stationery  and  Printing 
Other  Expenses. 


Greneral— Divided  in  pro- 
portion to  all  other 
'^Maintenance  of 
Equipment ' '  Accounts. 


Maintaining   Joint 
Terminals— Dr. 

Maintaining   Joint 
Terminals— Or. 


Equipment    at 
Equipment    at 


Non-Haulage. 


Traffic  Expenses. 

74.  Superintendence — Passenger. 

75.  Superintendence— Freight. 

76.  Outside  Agencies— Passenger. 

77.  Outside  Agencies— Freight. 

78.  Advertising— Passenger. 

79.  Advertising— Freight. 

80.  Traffic  Associations— Passenger. 

81.  Traffic  Associations— Freight. 


^Non-Haulage. 


71 


82.  Fast  Freight  Lines. 

83.  Industrial  and  Immigration  Bureaus. 

84.  Stationery  and  Printing — Passenger. 

85.  Stationery  and  Printing — Freight. 

86.  Other  Expenses. 


Non- 
Haulage. 


Transportation  Expenses. 

87.    Superintendence. 

General — Divided  in  proportion  to  all  other 
**  Transportation '  *  Accounts. 

JB8.    Dispatching  Trains:    Haulage. 

89.  Station  Employes — Passenger. 

90.  Station  Employes — Freight. 

91.  Weighing  and  Car  Service  Associa- 

tions. 

92.  Coal  and  Ore  Docks. 

93.  Station  Supplies  and  Expenses. 

94.  Yardmasters  and  their  Clerks. 

95.  Yard  Conductors  and  Brakemen. 

96.  Yard  Switch  and  Signal  Tenders. 

97.  Yard  Supplies  and  Expenses. 

98.  Yard  Enginemen. 

99.  Enginehouse  Expenses — Yard. 

100.  Fuel  for  Yard  Locomotives. 

101.  Water  for  Yard  Locomotives. 

102.  Lubricants  for  Yard  Locomotives. 

103.  Other  Supplies  for  Yard  Locomo- 

tives. 

104.  Operating  Joint  Yards  and  Termi- 

nals— Dr. 

105.  Operating  Joint  Yards  and  Termi- 

nals—Or. 


Non- 
^Haulage. 


72 


106.  Motormen:    No  Charges. 

107.  Road  Enginemen — Passenger. 

108.  Road  Enginemen — Freight. 

109.  Road  Enginemen — Mixed. 

110  Enginehouse  Expenses — Road. 

111  Fuel  for  Road  Locomotives — Passen- 

ger. 

112  Fuel  for  Road  Locomotives — Freight. 

113.  Fuel  for  Road  Locomotives — Mixed. 

114.  Water  for  Road  Locomotives. 

115.  Lubricants  for  Road  Locomotives — 

Passenger. 

116.  Lubricants  for  Road  Locomotives — 

Freight. 

117.  Lubricants   for  Road  Locomotives — 

Mixed. 

118.  Other  Supplies  for  Road  Locomotives 

— Passenger. 

119.  Other  Supplies  for  Road  Locomotives 

—Freight. 

120.  Other  Supplies  for  Road  Locomotives 

— Mixed. 


^  Haulage. 


Operating  Power  Plants. 
Purchased  Power. 


Ko  Charges. 


121. 
122. 

123.  Road  Trainmen^ — Passenger. 

124.  Road  Trainmen — Freight. 

125.  Road  Trainmen — Mixed. 

126.  Train  Supplies   and  Expenses- 

senger. 

127.  Train   Supplies    and   Expense  s — 

Freight. 


-Pas- 


^  Haul  age. 


T3 


Haulage. 


Haulage. 


S^No  Charges. 

General— Divid- 
ed in  proportion  to 
J^all    other   ^*  Trans- 
portation*' Ac- 
counts. 


128.  Train  Supplies  and  Expenses — ^Mixed. 

129.  Interlockers  and  Block  and  Other  Sig- 

nals— Operation. 

130.  Crossing  Flagmen  and  Gatemen:  Non-Haulage. 

131.  Drawbridge  Operation. 

132.  Clearing  Wrecks. 

133.  Telegraph  and  Telephone — Operation 

134.  Operating  Floating  Equipment 

135.  Express  Service. 

136.  Stationery  and  Printing. 

137.  Other  Expenses. 

138.  Loss  and  Damage — Freight. 

139.  Loss  and  Damage — Baggage. 

140.  Damage  to  Property. 

141.  Damage  to  Stock  on  Right  of  Way 

Passenger. 

142.  Damage  to  Stock  on  Right  of  Way- 

Freight. 

143.  Injuries    to    Persons    (Not 

Employes) — Passenger. 

144.  Injuries    to    Persons    (Not 

Employes )  — Freight. 

145.  Injuries  to  Employes — Pas- 

senger. 

146.  Injuries     to     Employes — 

Freight. 

147.  Operating  Joint  Tracks  and  Facil- 

ities— Dr. 

148.  Operating  Joint  Tracks  and  Facil- 

ities— ^Cr. 


Haulage. 


General  —  Divided 
in  proportion  to  all 
^  other    **  Transporta- 
tion'* Accounts. 


J 


Haulage. 


74 


General  Expenses. 

149.  Salaries  and  Expenses  of 

General  Officers. 

150.  Salaries  and  Expenses  of 

Clerks  and  Attendants. 

151.  General     Office     Supplies 

and  Expenses. 

152.  Law  Expenses. 

153.  Insurance. 

154.  Relief     Department     Ex-      , 

penses.  Y 

155.  Pensions. 

156.  Stationery  and  Printing. 

157.  Other  Expenses. 

158.  General      Administration 

Joint     Tracks,     Yards 
and  Terminals — Dr. 

159.  General      Administration 

Joint     Tracks,     Yards 
and  Terminals — ^Cr. 


General — Divided 
in  proportion  to 
all  other  '' Mainte- 
nance of  Way  and 
Structure  s,'* 
* '  Maintenance  of 
Equipmen  t,'' 
^'Traffic"  and 
^  ^  Transportation ' ' 
Expenses. 


THE  UNIT  OF  SERVICE  PLAN  AND  THE  OKLA- 
HOMA PLAN  CONSIDERED  IN  CONNECTION 
WITH  A  PLAN  FOR  CURRENT  ACCOUNTING. 

A  committee  appointed  by  the  Oklahoma  Lines  to 
formulate  and  arrange  a  plan  for  the  apportionment  of 
operating  expenses  between  freight  and  passenger  serv- 
ice, subdivided  as  between  interstate  and  intrastate  to 
conform  as  nearly  as  might  be  to  the  rule  laid  down  by 
the  Supreme  Court  of  the  United  States  to  the  effect  that 
the  apportionment  of  expenses  should  follow  the  use  of 


75 

the  property  as  closely  as  possible,  have  adopted  a  for- 
mula known  as  the  Oklahoma  Plan. 

It  is  believed  that  an  investigation  of  both  the  Unit 
of  Service  Plan  and  the  Oklahoma  Plan  will  show  that 
each  plan  affords  a  means  of  distribution  which  is  at 
least  fair  to  the  passenger  traffic  and  to  the  intrastate 
traffic  as  a  whole;  that  is  to  say,  in  cases  of  doubt  the 
doubt  has  been  resolved  in  favor  of  charging  smaller 
amounts  to  the  passenger  traffic  and  to  the  intrastate 
traffic  than  might  reasonably  be  charged  to  those  classes 
of  traffic. 

It  will  also  be  found  that  both  plans  are  based  upon 
the  same  general  principles;  for  example,  both  plans 
recognize  the  necessity  for  a  subdivision  between  pas- 
senger traffic  and  freight  traffic  in  order  that  the  same 
units  may  be  used  for  the  purpose  of  further  subdivisions, 
and  both  plans  recognize  the  fact  that  other  conditions 
being  the  same,  no  separation  of  property  or  expenses 
can  be  based  merely  upon  the  distinction  between  inter- 
state traffic  and  intrastate  traffic,  and  that  if  the  circum- 
stances surrounding  the  handling  of  the  interstate  traffic 
were  exactly  the  same  as  those  surrounding  the  handling 
of  intrastate  traffic,  it  would  cost  just  as  much  to  do  the 
one  kind  of  traffic  as  it  would  cost  to  do  the  other  kind, 
and  that  the  basis  of  divisions  must  therefore  be  sought 
in  differences  of  conditions  or  characteristics  of  the  two 
kinds  of  traffic. 

And  both  plans  agree  in  adopting  as  the  most  distin- 
guishing feature  which  can  be  employed  for  this  purpose, 
the  average  length  of  haul,  the  distribution  under  the 


7« 

Unit  of  Service  plan  being  made  between  haulage  and 
non-haulage  accounts  and  the  distribution  in  the  Okla- 
homa plan  being  made  as  between  terminal  and  line  ac- 
counts, the  distinction  involved  being  the  same  in  each 
case. 

While  both  plans  are  based  upon  sound  general  prin- 
ciples, and  while,  even  under  the  varying  application  of 
the  same  general  principles  to  the  several  primary  ac- 
counts, both  plans  result  in  distributions  which  are  fair 
to  intrastate  traffic  and  to  passenger  traffic,  and  it  would, 
therefore,  seem  that  either  plan  or  both  plans  might  be 
adopted  as  a  standard  for  the  country,  it  is  believed  that 
the  expense  involved  in  carrying  out  either  of  the  plans 
in  its  entirety  as  a  current  or  continuous  method  of  ac- 
counting would  involve  a  cost  which  would  be  prohib- 
itive. To  make  the  test  of  freight  and  passenger  traffic 
in  the  State  of  Alabama  alone  for  one  week  on  the  lines 
of  the  Louisville  &  Nashville  System,  aggregating  less 
than  1,300  miles,  for  equalizing  the  haulage  units, 
passenger  miles  and  ton  miles,  as  was  done  in  the  Unit 
of  Service  Plan,  required  an  expenditure  of  about  ten 
thousand  dollars,  and  it  is  apparent  from  even  a  brief 
consideration  of  the  Oklahoma  plan  that  the  expenses  in- 
volved in  collecting  the  statistics  required  for  the  details 
of  that  plan  would  be  considerably  greater  than  that 
amount. 

It  is,  therefore,  respectfully  suggested  that  the  confer- 
ence which  is  to  convene  in  New  York  on  November  10, 
1913,  for  the  purpose  of  adopting  a  uniform  plan  of  ac- 
counting under  the  decision  in  the  Minnesota  rate  case 


77 

should  nol:  attempt  to  follow  in  its  entirety  either  plan  as 
a  regular  method  of  accounting,  but  should  use  both  plans 
as  affording  light  for  the  adoption  of  some  other 
plan,  which,  based  upon  the  general  principles  adopted 
by  both  plans,  will  provide  for  details  of  distribution  by 
primary  accounts  or  parcels  of  property  which  will  not 
involve  the  expense  contemplated  by  either  of  the  plans 
which  have  been  adopted  in  the  two  sections  of  the  coun- 
try. It  is  further  submitted  that,  as  a  statement  of  gen- 
eral principles,  the  following  resolution  is  in  accordance 
with  both  plans  and  is  in  accordance  with  what  should 
be  adopted  as  the  foundation  of  any  plan  for  uniform  ac- 
counting under  the  Minnesota  decision: 

'^Resolved,  That  in  the  separation  of  operating 
expenses  as  between  interstate  traffic  and  intrastate 
traffic,  according  to  use  made  or  service  performed, 
freight  and  passenger  expenses  should  first  be  di- 
vided as  between  haulage,  distance  or  line  items  on 
the  one  hand  and  non-haulage,  non-distance,  or  ter- 
minal items  on  the  other  hand;  that  freight  haulage 
items  should  be  apportioned  to  interstate  and  intra- 
state traffic  on  basis  of  the  number  of  ton-miles  (gross 
or  net)  in  each  class  equalized  or  adjusted  to  local 
conditions ;  that  freight  non-haulage  items  should  be 
apportioned  on  basis  of  tons  or  ton-terminals  (gross 
or  net)  so  equalized  or  adjusted;  and  that  passenger 
expenses  should  be  similarly  divided  on  basis  of 
equalized  or  adjusted  passenger-miles  and  passen- 
gers or  passenger-terminals. 

**By  haulage,  distance  or  line  expenses  are  meant 
expenses  which  vary  according  to  the  distance  which 
a  shipment  or  passenger  travels.  By  non-haulage, 
non-distance,  or  terminal  expenses,  are  meant  ex- 
penses which  are  not  affected  by  the  distance  which 
the  shipment  or  passenger  may  travel. ' ' 


5  5  ■•)  J?  * 


78 

With  such  a  resolution  or  a  similar  resolution  as  a 
starting  point,  the  problem  confronting  the  conference 
will  be  simplified  to  a  consideration  of  the  general  rules 
which  should  govern  the  equalization  or  adjustment  of 
the  units  of  distribution,  ton-miles,  passenger-miles,  tons, 
ton-terminals,  passengers  and  passenger-terminals,  ac- 
cording to  local  conditions  which  differ,  of  course,  accord- 
ing to  the  road  or  roads  under  consideration.  And  under 
the  application  of  the  general  principles  there  should  be 
observed,  as  far  as  possible,  a  general  rule  or  plan  of  dis- 
tribution for  every  step  to  be  taken  in  the  process. 
Respectfully  submitted, 

Henry  L.  Stone,  General  Counsel, 
"William  A.  Colston,  General  Solicitor, 
Louisville  d  Nashville  Railroad  Co. 


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